Social Exchange Theory: Definition and Examples

Social exchange theory is a theory in social psychology that postulates that people form a relationship through cost-benefit analysis.

According to social exchange theory, self-interested actors transact with other self-interested actors to reach individual goals that they can not attain on their own.

Social exchange theorists view relationship formation as behavior that may result in economic and social outcomes (Lambe et al., 2001).

For example, social exchange theory views a friendship between two people as arising from their realization that the benefits of that friendship outweigh its costs. Cost-benefit analysis, therefore, drives not only market relations but all human relationships (Burns, 1973).

Definition of Social Exchange Theory

Social exchange theory was founded by George C. Homans (Homans, 1961) and most comprehensively developed by John W. Thibaut, Harold H Kelly, Peter M. Blau, Richard M. Emerson, and Claude Lévi-Strauss.

Social exchange theorists generally compare all human interactions with the financial market. Unlike economic exchange, however, the elements of social exchange are rather varied and cannot be reduced to a single quantitative exchange rate, such as market price.

All approaches to social exchange theory are unified by the assumption that cost-benefit analysis drives relationship decisions.

According to social exchange theory, every relationship has the following components:

1. Costs – the elements of a relationship which have a negative value to a person. For example, the money one spends to sustain a romantic relationship.
2. Rewards – the elements of a relationship which have a positive value to a person. For example, the companionship of a friend.

Social exchange theory argues that people calculate the overall worth of a relationship by subtracting the costs of that relationship from its rewards.

Based on this formula, we can see the different examples of relationships people form according to social exchange theory (McDonell et al., 2006, p. 366).

Social Exchange Theory Examples

• Most Profit – When faced with alternatives, every individual will calculate the costs and benefits of each and decide according to the outcome.
• Highest reward – Costs being equal, an individual will choose the alternative from which they expect the highest reward.
• Lowest cost – Rewards being equal, an individual will choose the alternative from which they expect the lowest cost.
• Long-term outcome – Immediate costs and rewards being equal, an individual will choose the alternative from which they expect the best long-term outcome.
• Immediate outcome – Long-term costs and rewards being equal, an individual will choose the alternative from which they expect the best immediate outcome.
• Social approval – All other costs and rewards being equal, an individual will choose the alternative from which they expect to receive the most social approval.
• Autonomy – All other costs and rewards being equal, an individual will choose the alternative from which they expect to receive the most autonomy.
• Least ambiguity – All other costs and rewards being equal, an individual will choose the alternative the outcomes of which are the least ambiguous.
• Security – All other costs and rewards being equal, an individual will choose the alternative from which they expect to receive the most security.
• Agreement – All other costs and rewards being equal, an individual will enter into relationships with people with whom they agree more often.
• Equal status – All other costs and rewards being equal, an individual will enter into relationships with whom they perceive to share social status.
• Monetary gain – All other costs and rewards being equal, an individual will choose the alternative from which they expect to receive greater financial/monetary profits.

5 Best Examples

1. Highest Reward

Costs being equal, an individual will choose the alternative from which they expect to receive the highest reward.

For example, if you had to choose between going to the cinema alone and going to the cinema with a friend whose company you always enjoy, you are likely to choose the latter.

According to social exchange theory, you analyzed the costs and rewards of each alternative. You concluded that the two alternatives have the same costs. You also concluded that going with a friend has the additional benefit of companionship. You will, therefore, go with a friend.

2. Lowest Cost

Rewards being equal, an individual will choose the alternative from which they expect the lowest cost.

For example, if you had to choose between going on a date with someone that only enjoys expensive food and going on a date with someone who likes all kinds of food, you are more likely to choose the latter alternative.

You may like the first person just as much as the second, but going on a date with the first person will have an added financial cost. According to social exchange theory, you calculated that the rewards are roughly the same, but the costs are different. You will, therefore, go on a date that will cost you less.

3. Best Long-Term Outcome

Immediate costs and rewards being equal, an individual will choose the alternative from which they expect the best long-term outcome.

For example, if you had to choose between forming a financial relationship with someone who owns successful businesses or with someone who doesn’t, you are more likely to choose the former.

The immediate outcome might be the same. They might be willing to invest the same amount of money and effort into your new project. But you have a reason to think that the first alternative will result in a better outcome in the long term.

4. Best Short-Term Outcome

Long-term costs and rewards being equal, an individual will choose the alternative from which they expect the best immediate outcome.

This is, in a sense, the converse of the previous example. Imagine, for example, that you have to choose between forming a financial partnership with someone who offers an immediate investment and with someone who doesn’t.

Social exchange theory postulates that you are more likely to choose the former alternative. This is because even if you can’t currently calculate the long-term outcome, the first alternative offers a better short-term outcome.

5. Social Approval

All other costs and rewards being equal, an individual will choose the alternative from which they expect to receive the most social approval.

Imagine, for example, that you have to choose between forming a romantic relationship with someone popular in your friend group or someone disliked by them.

In such a case, the perceptions of your friend group are likely to influence your decision. You are going to calculate that the social approval you will receive if you go for the first alternative is greater. So social exchange theory would predict that you are more likely to form a relationship with someone popular in your friend group.

Criticisms of Social Exchange Theory

One critique of social exchange theory is that is fails to adequately address the complexities of social relationships. There is a great deal of factors that go into why a person might engage in a relationship with another person.

Thus, while the theory may make theoretical sense, it’s hard to ever put it into practice. Each person has unique reasons – psychological, social, physical, etc. – for why they maintain social relations with the people around them.

Indeed, people may even have irrational or unconscious reasons for why they remain in social relationships that cannot be explained by the simplicity of this theory.

Furthermore, the theory fails to account for the position of empathy and altruism in human behavior. There are many examples of decisions made by people that appear selfless or even self-destructive that the theory struggles to account for.

Conclusion

Social exchange theory is one of the most prominent perspectives in the social sciences. It is a general view of human relationships that is based on several key assumptions.

It posits that we naturally seek rewards and avoid punishments. It assumes that we are rational and calculating. It states that we evaluate our relationships based on their costs and benefits.

According to this theory, everyone wants to enter into relationships that are beneficial and avoid relationships that are too costly.

Friendships, romantic relationships, family relationships, and so on can all be seen as similar to financial relationships. For a social exchange theorist, the most vital components to understanding human relationships are their costs and rewards.

References

Blau, P. M. (1964). Exchange and power in social life. New York, J. Wiley.

Burns, T. (1973). A Structural Theory of Social Exchange. Acta Sociologica, 16(3), 188–208. https://doi.org/10.1177/000169937301600303

Homans, G. C. (1958). Social Behavior as Exchange. American Journal of Sociology, 63(6), 597–606. https://doi.org/10.1086/222355

Homans, G. C. (1961). Social Behavior: Its Elementary Forms. Harcourt, Brace & World.

Lambe, C. J., Wittmann, C. M., & Spekman, R. E. (2001). Social Exchange Theory and Research on Business-to-Business Relational Exchange. Journal of Business-to-Business Marketing, 8(3), 1–36. https://doi.org/10.1300/J033v08n03_01

McDonell, J., Strom-Gottfried, K. J., Burton, D. L., & Yaffe, J. (2006). Behaviorism, social learning, and exchange theory. In Robbins, S. P., Chatterjee, P. and Canda, E. R. (2006). Contemporary human behavior theory: a critical perspective for social work. Pearson, 349-85.

Stafford, L. (2008). Social Exchange Theories. In Baxter, L. A., & Braithwaite, D. O. (2008). Engaging Theories in Interpersonal Communication: Multiple Perspectives. SAGE.

Thibaut, J., & Kelley, H. (1959). The Social Psychology of Groups. Transaction Publishers.