For there are three philosophical sects among the Jews. The followers of the first of whom are the Pharisees; of the second the Sadducces; and the third sect, who pretends to a severer discipline, and called Essenes.
In Antiquities 13.171 Josephus expands on the classification of these schools:
At this time there were three sects among the Jews, who had different opinions concerning human actions; the one was called the sect of the Pharisees, another the sect of the Sadducees, and the other the sect of the Essenes. (172) Now for the Pharisees, they say that some actions, but not all, are the work of fate, and some of them are in our own power, and that they are liable to fate, but are not caused by fate. But the sect of the Essenes affirm, that fate governs all things, and that nothing befalls men but what is according to its determination. (173) And for the Sadducees, they take away fate, and say there is no such thing, and that the events of human affairs are not at its disposal; but they suppose that all our actions are in our own power, so that we are ourselves the cause of what is good, and receive what is evil from our own folly. (Cf. Ant. 18.11-22.)But how useful is Josephus' three fold distinction of Jewish philosophical schools? We may note his mention of the " fourth sect of Jewish philosophy" of Judas the Galilean. On the other hand, we may view the fourth school as a subschool of the first: "These men agree in all other things with the Pharisaic notions; but they have an inviolable attachment to liberty; and say that God is to be their only Ruler and Lord." (Ant 18.23)
But as Dr McGrath asked, what of the "tribe of Christians", followers of the Jewish wise man Jesus? (Ant. 18.63-4) Why would they not constitute a "fifth philosophy" from among the Jews? What about the other Jewish sects we know of that failed to get a mention? As James H. Charlesworth writes,
"We also generally agree that there were more than three main schools of thought among the Jews in ancient Palestine. Today, we all admit this schematization is anachronistic and systematically excludes such major groups as the Samaritans, Zealots, Sicarii, Baptist groups, Enoch groups, the Jewish magical groups, the Boethusians, scribal groups, Galilean miracle-workers, Roman quislings, and many others who claimed to be faithful Torah-abiding Jews. It also excludes the group from the first century that eventually became most powerful: the Palestinian Jesus Movement." (James H. Charlesworth, "The Dead Sea Scrolls: Their Discovery and Challenge to Biblical Studies," in The Bible and the Dead Sea Scrolls: Vol 1: Scripture and the Scrolls ed. J.H. Charlesworth, p.7.)
Noting the inadequate nature of Josephus' three school distinction, how should we approach it?
I would suggest that it is as a literary device, part of a consistent push by Josephus to relate the Jewish world to Greek thought and engage his Hellenistic Roman audience. At times he meets the Greek conception while at others he makes use of strong analogy. The three groups of Jewish thought are intended to draw analogy to the philosophical tradition. To point out the obvious, the terms "schools" and "philosophy" are appealing to a Roman understanding and not a contemporary Jewish classification. Furthermore, the classification/distinction of the schools with regard to human actions and fate has a lot more to do with philosophical thought than Jewish sectarianism. In a broad sense it may be suggested that Josephus is presenting groups of Judaism as analogy to the schools of Greek philosophy - Pharisees are presented like the Stoics(Life 1.12: sect of the Pharisees, which is of kin to the sect of the Stoics, as the Greeks call them), the Sadducees as the Epicureans and the Essenes are like the Pythagoreans.
As an afterthought, the three philosophies are those that Josephus claims to have personally tried out:
and when I was about sixteen years old, I had a mind to make trial of the several sects that were among us. These sects are three:—The first is that of the Pharisees, the second that of the Sadducees, and the third that of the Essenes, as we have frequently told you; for I thought that by this means I might, choose the best, if I were once acquainted with them all; (Life 1:10)Note (subject to the Greek I do not have on hand) the implication of there being more than the three sects that were among the Jews at the time.