Nassim Taleb is a joke. The "research" for the the paper you cite, and which any good undergrad would be ashamed to turn in, consisted in asking a bunch of quant finance professionals and grad students to answer the following question:

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?

Unsurprisingly, most people go with 1% for the daily sigma, when the actual answer is 1.25%. Hence, taleb reasons, people equate mean absolute deviation and standard deviation, and since for some random variables ("a vector of dimension 10^6, composed of 999,999 elements of 0 and one of 10^6", aka a Bernoulli) the difference is dramatic.

As an aside: Taleb notes that a lot of them declined to respond, and that "one might expect this sort of self-selection to improve accuracy". Given the fact that good people tend to be too busy to indulge in these kinds of game, and that mathematically oriented people too rigorous not too be put off by expressions like "living in a Gaussian world" (if only we did...), I would actually expect the self-selection to increase accuracy. But I digress.

The point is that the introduction of the concept of mean absolute deviation, which is rarely used and whose value is in practice, for non-pathological cases, close to the much more commonly used standard deviation was bound to lead the respondents into error. Asking the annual volatility only makes things worse (a "trap", in student-speak): a lot of the students probably saw this as a typical "annualize the daily volatility" question.

Mathematical chicaneries like these have absolutely (excuse the pun) no relevance in a trading floor, as Taleb well knows. No one is going to use a normal distribution table to find out the probability of google moving more than 3sd's any given day; "standard deviation" is, by and large, simply used as a proxy for volatility (in the layman's sense of the word).

The irony of all this is that just as Taleb started making his let's buy OTM options theory, finance markets entered a stage of unprecedented low volatility, and no matter how loud the bard sang, his black swan refused to make his entrance, causing the philosopher trader to return his gullible investors' money and embark on a journey of cafe hopping and museum visiting" (no soul-seeking for us). I hear that after trying his hand at the trading floor and the lecture hall, Taleb is schedule to appear on Comedy Central (was it today?). This time, it seems, he has found his calling.