Most items are bad because there are many more items than characters.
Let's look at a simple example. For simplicity, pretend that you never look at the auction house. You've finally hit level 60, reached Inferno, and found your first level 60+ weapon, which is better than whatever you had before and you equip it.
5 minutes later, you find another level 60+ weapon. What are the odds that this is an upgrade for you? 50/50. Half the time it's better, half the time it will be worse, not accounting for anything else.
5 minutes after that, another weapon! But is this one an upgrade? Well, it would have to be better than either of the previous weapons you have found, which it has only a 1 in 3 chance of being.
The next weapon? 1 in 4.
It keeps going like this, with the odds of any drop being an upgrade for you being proportional to 1/T, where T is the time you've been playing. This is totally without regard to the randomization algorithm or how items are generated or anything of the sorts - once you're no longer improving your drop tables, your upgrade frequency is going to drop as you keep playing, until you essentially stop finding upgrades at all.
Now take the auction house into account. What this does is redistribute items between players. Assume, for example, that there are a million players with a level 60 on the auction house. That would mean that, roughly, only the million best weapons ever found are worth much at all, with the price of weapons right on the edge of that million being exceptionally low since they're so similar to items that just miss the cut. Then add in that this is going to suffer from the same 1/T relationship as the solo play example - we're 10 weeks into the game so far, and after another 10 weeks the number of weapons found will have doubled, which means half the weapons that currently exist will have dropped from 'marginal' to 'crap'.
What does that mean for your own drops? It means the usefulness of your own drops, from the perspective of the auction house, does not depend on how long you have played, but how long *everyone* has played. The more everyone plays, access to high quality gear increases, while an increasing number of items on the edge slip from useful to trash.
This has nothing whatsoever to do with the randomization method, or even how item mods are generated; it's just the nature of picking out the best items from a random pool with a constant generator algorithm. There's nothing whatsoever Blizzard can do about this; it's baked into the game.
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Let's look at a simple example. For simplicity, pretend that you never look at the auction house. You've finally hit level 60, reached Inferno, and found your first level 60+ weapon, which is better than whatever you had before and you equip it.
5 minutes later, you find another level 60+ weapon. What are the odds that this is an upgrade for you? 50/50. Half the time it's better, half the time it will be worse, not accounting for anything else.
5 minutes after that, another weapon! But is this one an upgrade? Well, it would have to be better than either of the previous weapons you have found, which it has only a 1 in 3 chance of being.
The next weapon? 1 in 4.
It keeps going like this, with the odds of any drop being an upgrade for you being proportional to 1/T, where T is the time you've been playing. This is totally without regard to the randomization algorithm or how items are generated or anything of the sorts - once you're no longer improving your drop tables, your upgrade frequency is going to drop as you keep playing, until you essentially stop finding upgrades at all.
Now take the auction house into account. What this does is redistribute items between players. Assume, for example, that there are a million players with a level 60 on the auction house. That would mean that, roughly, only the million best weapons ever found are worth much at all, with the price of weapons right on the edge of that million being exceptionally low since they're so similar to items that just miss the cut. Then add in that this is going to suffer from the same 1/T relationship as the solo play example - we're 10 weeks into the game so far, and after another 10 weeks the number of weapons found will have doubled, which means half the weapons that currently exist will have dropped from 'marginal' to 'crap'.
What does that mean for your own drops? It means the usefulness of your own drops, from the perspective of the auction house, does not depend on how long you have played, but how long *everyone* has played. The more everyone plays, access to high quality gear increases, while an increasing number of items on the edge slip from useful to trash.
This has nothing whatsoever to do with the randomization method, or even how item mods are generated; it's just the nature of picking out the best items from a random pool with a constant generator algorithm. There's nothing whatsoever Blizzard can do about this; it's baked into the game.