Neural Network Example

              A neural network is a software simulation of a biological brain. These networks are sometimes called Artificial Neural Network or "ANN". The purpose of a neural network is to learn to recognize patterns in data. Once the neural network has been trained on samples of the data, it can make predictions by detecting similar patterns in future data. A Neural network can be considered as a black box that is able to predict an output pattern when it recognizes a given input pattern. The neural network must first be "trained" by having it process a large number of input patterns and showing it what output resulted from each input pattern. Once trained, the neural network is able to recognize similarities when presented with a new input pattern, resulting in a predicted output pattern.
              An example of the use of a neural network in the finance industry could be in reference to the determination of giving out a bank loan. Imagine a highly experienced bank manager who must decide which customers will qualify for a loan. His decision is based on a completed application form that contains ten questions. Each question is answered by a number from 1 to 5 (some responses may be subjective in nature). The problem is that most real-life problems are non-linear in nature. Our ten question application has almost 10 million possible responses. The bank manager's brain contains a Neural Network that allows him to use "Intuition". Intuition will allow the bank manager to recognize certain similarities and patterns that his brain has become attuned to. He may never have seen this exact pattern before, but his intuition can detect similarities, as well as dealing with the non-linearities. If we had a large number of loan applications as input, along with the manager's decision as output, a neural network could be "trained" on these patterns. The inner workings of the neural network have enough mathematical sophistication to reasonably simulate the expert's intuition. This way a neural network application can go over loan applications faster and more efficiently.