Thank you CensoredReality. That makes sense, especially the part about allowing a strong player to reach his "true" rating strength without have to play an inordinate number of games against weak players.
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I have a friend who has only played three games. They were against players with the following ratings and in this order (1657,955, and 1063). He won all three games but I don't understand how his rating went from Unrated to 1710 after those three games. Can anyone explain how that works?