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PUG is an abbreviation for Pick Up Group. Refers to a party assembled from the random pool of available players in a town, as opposed to a coordinated Guild excursion or friends setting up an adventure together. It is sometimes used in a negative connotation.
The more uncommon use of this term is Person Unaffiliated with Guild. This variation is generally used in guild chat servers such as Ventrilo or Teamspeak.
PUGs are easy to find and assemble, but will usually be of lesser quality compared to organized groups, the main reason being lack of communication and familiarity with each other's style. PUGs are most convenient for quickly completing a quest or mission and are least suitable for areas of the game that require a great amount of synchronization such as Heroes' Ascent, Elite Missions or the Realms of the Gods.