> A stock (or a fund) has an average return of 0%. It moves on average 1% a day in absolute value; the average up move is 1% and the average down move is 1%. It

> A stock (or a fund) has an average return of 0%. It moves on average 1% a day in absolute value; the average up move is 1% and the average down move is 1%. It does not mean that all up moves are 1% — some are .6%, others 1.45%, etc. Assume that we live in the Gaussian world in which the returns (or daily percentage moves) can be safely modeled using a Normal Distribution. Assume that a year has 256 business days. The following questions concern the standard deviation of returns (i.e., of the percentage moves), the “sigma” that is used for volatility in financial applications. What is the daily sigma? What is the yearly sigma? Doesn't excuse the wrong answers, but the question has been engineered to make it look like the answer is in the question. As for me, I have the suspicion that at least part of the wrong answers are more laziness than ignorance. I think that at least some of the people who answered wrong on some random questionnaire because they couldn't be bothered do some calculations, would do the calculations if their money depended on it. I'm not sure I learned anything from this, other than "Nassim Taleb invented a question that bets on you having the intuition that standard deviation is the mean value of the absolute distance to the mean" and being lazy. EDIT: The proof that this question is betting on people's laziness and he knows it is the fact that in the question he presents not one but TWO things which are completely irrelevant to his point. One is the number of days in the year, the second is that he asks for yearly sigma. But notice that neither of those are relevant for his point, which is that people have the intuition of "standard deviation" as "mean absolute deviation." They are only there because if they weren't and people would just asked for "daily sigma" they would think "the answer is in the title, there must be a trick, oh wait a minute I got it". So not only he's betting on your laziness but additionally he's making all he can to tip the scales in his favor.