We don't quite know what we are talking about when we talk about volatility .

Abstract

Finance professionals, who are regularly exposed to notions of volatility, seem to confuse mean absolute deviation with standard deviation, causing an underestimation of 25% with theoretical Gaussian variables. In some “fat tailed” markets the underestimation can be up to 90%. The mental substitution of the two measures is consequential for decision making and the perception of market variability. Electronic