“A computer will never tell you to buy one stock and sell another… (there is) no substitute … for flair in judgment, and a sense of timing”
Wall Street Journal, 1962
The history of Neural Nets (NN) in finance in many ways follows the general development of Arti- ficial Intelligence (AI – a term coined by John McCarthy). The trading industry first became excited about NN in the 1980s on the coattails of the AI boom in the 1950s-1970s.
Then, AI was all the rage. The theoretical concept laid out by Alan Turing in Computing Machinery and Intelligence was later picked up by Allen Newell, Cliff Shaw, and Herbert Simon who invented the first AI program – Logic Theorist. In 1958 Newell and Simon proclaimed that computers would beat the world chess champion in 10 years. It did happen, of course, but much later – in 1997, when IBM’s Deep Blue won a 6-game match against Garry Kasparov.
In 1967, Marvin Lee Minsky prophesied that the problem of AI would be solved in one generation. Years later, in 1975, he further predicted that in “three to eight years we will have a machine with the general intelligence of an average human being.” We are still far from that, and it looks like it will take more than one generation from the “G” in AGI (Artificial General Intelligence).
In Part I of our Transformer series, we will discuss the three waves of NNs in finance – from early forecasting models to deep NNs – and lay the groundwork for an exciting journey into the world of transformers.