Kudos to 
Excalibur_Z from the Teamliquid forums for making such a great post on the Sc2 laddering system. Sourced from http://www.teamliquid.net/forum/viewmessage.php?topic_id=142211.
IntroductionThis post is a followup to the 
original ladder analysis post,  which shall go into further detail regarding the system. Please note  that much of the content contained within this post is of a more  speculative nature, and if a detail here is wrong it should not reflect  poorly on the original analysis. I will be delving deeper into the  mathematical underpinnings, though it should not be excessively complex  and I will try to make it easy to follow.
OverviewTo  start with, we assumed that Blizzard used a system quite similar to  their WoW Arena matchmaking system, albeit with refinements. The Arena  system uses a Bayesian inference model to create its ladder and do its  matchmaking. What this means in essence is that the rating used to  represent your skill is easily updated after each match. For more  details, see: 
http://en.wikipedia.org/wiki/Bayesian_analysisIn  conjunction with this, the MMR is actually one part of the skill  probability distribution. Blizzard also uses an “uncertainty” factor.  That is, when you first start in Arena there is a lot of uncertainty in  your rating. As you play more games, that uncertainty decreases and the  system is more “confident” in the rating it has assigned to you. I will  be referring to this uncertainty factor as 
sigma, and it is the  inverse of the system's confidence.  This forms a bell curve, also known  as a Gaussian, or normal, distribution. For more details, see: 
http://en.wikipedia.org/wiki/Gaussian_distribution  .  The curve represents a couple related ideas: the range in which your  skill may truly fall, as well as the fact that you do not play at  exactly the same skill level every game. A more consistent player would  have a narrower curve, for example.
This class of ladder and  matchmaking is not new. The first system using a method similar to this  is the Glicko system, used to rank chess players, and is arguably better  than the famous ELO system which encourages some strange behavior (e.g.  it is better to draw in ELO than risk a loss in many cases). Another  well-known system is Microsoft TrueSkill, used in every Xbox 360 game  for matchmaking and ranking, as well as PC games such as Dawn of War 2.
The  published data on TrueSkill gives a glimpse at the underpinnings of a  modern Bayesian ranking system designed for videogames. Blizzard’s  implementations are obviously different from TrueSkill, though we can  infer much from what we know about TrueSkill, and what we know about the  SC2 ladder.
For a layman’s primer on TrueSkill: 
http://research.microsoft.com/en-us/projects/trueskill/details.aspxFor an in-depth description of TrueSkill: 
http://research.microsoft.com/apps/pubs/default.aspx?id=67956MatchmakingThe  short version of what the links above show is that it is possible (and  computationally efficient) to take the MMR and uncertainty factor (also  known as sigma, or standard deviation) for both players. The MMR and  sigma form a bell curve per player. It is possible to combine the bell  curves into a 3D probability distribution. This is done by combining the  data to form a shape like this:
![[image loading]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_snIaM8gWE91ZhyEYH5lIUUnu-SpHoSjnVsRiC_sZrxnqAMNLS4wwuI5ImDmR69ozO_kqXOON92Hn8hxNpvAdgupYiUy0YHgtNx1zEBpPiPKNJyTKdJ=s0-d)
It  may help to think of it as combining the two 2D curves perpendicularly  and forming this 3D shape. This shape is centered on a point in the  (x,y) plane, where x represents player 1’s skill, and y represents the  skill of player 2. Intuitively, the best matches will be between ratings  where x=y. Thus, Blizzard attempts to keep it as close as possible.  Looking at this same shape top-down (try to visualize it as a  topographical map):
![[image loading]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_s7JviCPRQqxGPg1CqTIPYmS6ZEqhtAyObIHaXlEPopRDJgNUWvra8Nue98vgsc9sApF7ina_Sd6n7XsNuLrUxbu9p0rA_4XInrhRwz_WwxVZjzQMc=s0-d)
Run  a line along x=y, and you will split the shape into 2 pieces. If you  sum the volume under the shape on each side of this split, and compare  their relative size you will get the probability of a player victory. If  the curve is contained wholly within one side of the graph then clearly  that player is overwhelmingly favored by the system (Note: this is NOT  the same thing as the “Favored” display on the loading screen!). Also  note that this does not need to be circular when looking at a top-down  section. If players have different confidence values it will look like  an ellipse.
Note that this figure is taken from a TrueSkill  presentation, and is copyright Microsoft. TrueSkill incorporates the  possibility of a draw. More intuitively, it can be thought of as the  “matchmaking sweet spot”, and something similar is likely used by SC2’s  ladder to provide the system some wiggle room in matchmaking.
After  a match finishes, the system needs to update the MMR and sigma for both  players. Displayed rating will be discussed later in this post.  Whenever a match finishes the winner’s MMR increases and the loser’s  decreases. More interesting is what happens to the sigmas. If the match  finished as expected with the MMR favored player winning (and remember,  the loading screen “favored” display is NOT this) then both players'  sigmas will decrease. That is, the system gains confidence in the  ratings it has assigned to the players. If the match finishes in an  upset and both players' sigmas are small, then the sigmas for both  players will increase as the system thinks it may have an incorrect  rating assigned to both. 
The change in sigma scales based upon the difference in MMR and the difference in sigmas.  That is, losing to someone close to your own rank will not change your  sigma too much (though it will over the course of several games).
If  a lower-MMR player wins then what happens depends a lot more on their  precise equations they are using. If a player's sigma is large in an  upset (whether he's the winner or loser) it can decrease. That is  because, given the right MMR and sigma values, it's possible in theory  for the system to learn about that player's skill and rate him more  accurately. If a player's sigma is small, however, it can become larger  after an upset if that upset was truly unexpected.
To summarize:  combining the MMR and uncertainty factor of a player creates a curve.  Take two of these curves and form a 3D shape. This shape shows the  probability of victory when split along x=y. Matchmaking tries to have  x=y, but will expand the search if no match is found quickly.
PromotionAs  initially theorized, promotion requires your MMR to be above a certain  league threshold.  However, because MMR changes greatly after each match  and the opponent variation is so wide, often spanning multiple leagues,  the system requires a particular degree of confidence before it allows  promotion.  Our initial theory assumed that sigma just needed to be  small enough to allow promotion, but it's been confirmed that sigma  never gets this small.  Instead, it does this by a 
moving average.  Here's an example:
![[image loading]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_sfBsrbSoFwxxd96q4ZAd01PyRdWhNfJoN-fCl4xdhzgvaF1Vsy-oDNzQP9fqIZiZibj_HJwKu9eK06G4QxFEfMHCS3f8zAdQ=s0-d)
MMR  is erratic.  A moving average seeks to smooth out the rapidly changing  data points over time by evaluating your progress over X number of  games.  As we previously estimated, the system doesn't use your 
full  match history because if it did, you would eventually get stuck in a  league.  Once your moving average crosses a particular league threshold,  that's when you'll get promoted.
Players like CauthonLuck and  Ret who had obscene win ratios had their MMR data points skyrocket.   However, the moving average lags behind.  In the cases of those players,  it will take much longer for the moving average to reach that required  threshold.  This is why players like IdrA who were affected by this  problem have decided to intentionally throw games in order to get  promoted, because it allows the moving average to catch up more quickly. 
Possibly related is players that aren't getting promoted or  demoted properly despite a high likelihood that their moving average  would have crossed the confidence threshold. Blizzard has said that this  is indeed a bug and will be fixed by moving the affected players to new  divisions.
Displayed RatingOk, how does  all of this tie into displayed rating and the whole “favored” deal? If  you remember back to WoW, ratings changed based on a direct comparison  of your displayed rating to the other team’s MMR. So if your current  rating was 500 and you were playing people with MMRs of 2000, your  rating would jump significantly after every win because of the wide  disparity. Now, we’ve identified that on the loading screen quite often  players are seeing the other person as favored and the opponent (who is  nominally “favored”) also sees his opponent as favored! How can this be?  The theory put forth here is the system is again comparing your  displayed rating to your opponent’s hidden MMR.
The reason for this is so that the system brings you toward your MMR more quickly.  kzn explains:
On August 08 2010 14:30 kzn wrote:
How  it works was like this: Say you've got a MMR of 2500, and you start a  new team. It starts at 0 rating, but the matchmaking system will match  you with other players of MMR 2500. If you lose a game, your team rating  would not change at all. If you won, it would increase by 47 (a hard  cap that was in place at least when I played). This was not explained as  arising due to an interaction between the team rating and the  opponent's MMR, however - it was explained as the system trying to get  your team's rating as close as possible to your team's MMR rapidly. 
Therefore,  a corollary here is that when determining rating increase, the hidden  threshold value for your league is added to your displayed rating, then  compared to your opponent’s MMR, for purposes of computing the gain/loss  to your displayed rating.
Example: ExcaliburZ and I play a game.  His MMR: 2600, sigma: 100, displayed rating: 300. My MMR: 2500, sigma:  50, rating: 150. Diamond’s MMR threshold: 2300. Excal wins because he  rules. What happens?
- His MMR will increase
- My MMR will decrease
- Both of our sigmas will decrease
-  His rating will increase. How? By comparing my MMR (2500) against his  rating + diamond’s MMR threshold: 300 + 2300 = 2600, his gain is thus  off 2600 vs my MMR of 2500
- My rating will decrease. In the same  way: his MMR: 2600. My rating + threshold: 150 + 2300. Thus I lose  points proportionally to 2450 vs 2600.
ConclusionsSC2 uses a 
Bayesian inference system  for its skill determination which forms an MMR and a confidence value  for each player. These form a Gaussian distribution useful in  determining win probability. Promotions/demotions occur when a player  exceeds/drops below a threshold with sufficient confidence. Displayed  rating changes according to a combination of the rating itself combined  with the hidden MMR and league thresholds.
More clarifications from Vanick:
On August 08 2010 11:33 vanick wrote:
To  be clear, the player's skill is never pinpointed. The sigma is never 0.  All players vary in their performance from game to game and over time  as their skill increases (or decreases!).
I left a point out in  my writeup that I probably should have included. TrueSkill, and likely  SC2's ladder, have a factor based off the time since your last game that  increases the player's uncertainty level (sigma) by an amount related  to that. Even if you're playing games back to back this factor will have  a minimum value that will still increase sigma. This allows the system  to adapt to a player whose skill increases over time.
QuestionsSome of these have answers. Some are open questions. You can add on; I will answer them as best I can.
Q: So what’s the deal with people stuck in Platinum who can’t get promoted to Diamond despite clearly belonging there?
A:  Short answer? It’s a bug. Longer answer: a lot of people have suggested  that the system requires you to lose in order to build its confidence  factor. This is almost certainly incorrect. The system in theory learns  enough about you from your wins to promote you. Intuitively, if your  record is 60-5 against diamond players, you ought to be in Diamond. The  TrueSkill system can determine this, and I would be dollars to donuts  that Blizzard’s system can too, as designed anyways. Implementation may  have introduced bugs that certain players hit under certain conditions.  We don’t have enough evidence to flat out state that the system requires  you to lose. It may be a workaround to the bug, however.
One  possible explanation is that the moving average lags so far behind that  more games are required in order to cross the promotion threshold.  It's  also possible that the bug prevents the moving average from changing.
Q:  So how do bonus points affect the display rating changes? If the  displayed rating change is based upon the comparison of the opponent's  MMR with the player's displayed rating + the player's league cutoff,  then wouldn't bonus points inflate the displayed rating and cause  problems?
A: I'm not sure how they account for this. One possibility  is they keep track of bonus points that make up your displayed rating,  and ignore them when performing the calculation in the back-end.
Excal:  It seems more likely that the bonus pool is only used to increase the  displayed rating for division ranking purposes and ignored in back-end  calculation because the bonus pool increases at the same rate for all  players.  This introduces a constant that is easily discarded when  assessing actual skill within the system.  Furthermore, if bonus points  were considered in the process of point calculation, it would present an  unfair advantage for players who have not yet used up their bonus pool  (because their rating is therefore inflated giving them more to lose).
Q:  Would it take longer to get promoted if you've played lots of games?  Assuming someone played a large amount of games (say 100 with a 50%  win/loss ratio). If he were to start winning 70% of his games, would it  be harder for him to get promoted than someone with similar percentages  but fewer games played?
A: It would take longer, yes.  The moving average trails behind sharp increases in skill.