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Social exchange theory is a social psychological and sociological perspective that explains social change and stability as a process of negotiated exchanges between parties. Social exchange theory posits that human relationships are formed by the use of a subjective cost-benefit analysis and the comparison of alternatives. The theory has roots in economics, psychology and sociology. Social exchange theory features many of the main assumptions found in rational choice theory and structuralism.
Social exchange theory was introduced in 1958 by the sociologist George Homans with the publication of his work "Social Behavior as Exchange". He defined social exchange as the exchange of activity, tangible or intangible, and more or less rewarding or costly, between at least two persons. After Homans founded the theory, other theorists continued to write about it, particularly Peter M. Blau and Richard M. Emerson, who in addition to Homans are generally thought of as the major developers of the exchange perspective within sociology. Homans' work emphasized the individual behavior of actors in interaction with one another. Although there are various modes of exchange, Homans centered his studies on dyadic exchange. John Thibaut and Harold Kelley are recognized for focusing their studies within the theory on the psychological concepts, the dyad and small group. Lévi-Strauss is recognized for contributing to the emergence of this theoretical perspective from his work on anthropology focused on systems of generalized exchange, such as kinship systems and gift exchange.
Homans summarizes the system in three propositions success, stimulus, deprivation–satiation proposition.
Peter Blau focused his early writings on social exchange theory more towards the economic and utilitarian perspective. Whereas Homans focused on reinforcement principles which believe individual's base their next social move on past experiences, Blau's utilitarian focus encouraged the theorist to look forward as in what they anticipated the reward would be in regards to their next social interaction. Blau felt that if individuals focused too much on the psychological concepts within the theory, they would refrain from learning the developing aspects of social exchange. Blau emphasized technical economic analysis whereas Homans concentrated more on the psychology of instrumental behavior.
Richard Emerson's early work on the theory intertwined with both Homans and Blau's ideas. From Homan's ideas, he believed social exchange theory was based on reinforcement principles. According to Emerson, Exchange is not a theory but a framework of from which other theories can converge and compared to structural functionalism. Emerson's perspective was similar to Blau's since they both focused on the relationship power had with the exchange process. Emerson says that social exchange theory is an approach in sociology that is described for simplicity as an economic analysis of noneconomic social situations. Exchange theory brings a quasi-economic more of analysis into those situations.
Self-interest and interdependence are central properties of social exchange. These are the basic forms of interaction when two or more actors have something of value to each other, and they have to decide whether to exchange and in what amounts. Homans uses the concepts of individualism to explain exchange processes. To him, the meaning of individual self-interest is a combination of economic and psychological needs. Fulfilling self-interest is often common within the economic realm of the social exchange theory where competition and greed can be common. In social exchange, self-interest is not a negative thing; rather, when self-interest is recognized, it will act as the guiding force of interpersonal relationships for the advancement of both parties’ self-interest" — Michael Roloff (1981) Thibaut and Kelley see the mutual Interdependence of persons as the central problem for the study of social behavior. They developed a theoretical framework based on the interdependence of actors. They also highlighted social implications of different forms of interdependence such as reciprocal control. According to their interdependence definition, outcomes are based on a combination of parties’ efforts and mutual and complementary arrangements.
Social exchange theory views exchange as a social behavior that may result in both economic and social outcomes. Social Exchange Theory has been generally analyzed by comparing human interactions with the marketplace. The study of the theory from the microeconomics perspective is attributed to Blau. Under his perspective every individual is trying to maximize his wins. Blau stated that once this concept is understood, it is possible to observe social exchanges everywhere, not only in market relations, but also in other social relations like friendship. Social exchange process brings satisfaction when people receive fair returns for their expenditures. The major difference between social and economic exchange is the nature of the exchange between parties. Neoclassic economic theory views the actor as dealing not with another actor but with a market and environmental parameters, such as market price. Unlike economic exchange, the elements of social exchange are quite varied and cannot be reduced to a single quantitative exchange rate. According to Stafford, social exchanges involve a connection with another person; involve trust and not legal obligations; are more flexible; and rarely involve explicit bargaining.
Simple social exchange models assume that rewards and costs drive relationship decisions. Both parties in a social exchange take responsibility for one another and depend on each other. The elements of relational life include:
Costs are the elements of relational life that have negative value to a person, such as the effort put into a relationship and the negatives of a partner. (Costs can be time, money, effort etc.)
Rewards are the elements of a relationship that have positive value. (Rewards can be sense of acceptance, support, and companionship etc.)
As with everything dealing with the social exchange theory, it has as its outcome satisfaction and dependence of relationships. The social-exchange perspective argues that people calculate the overall worth of a particular relationship by subtracting its costs from the rewards it provides.
If worth is a positive number, it is a positive relationship. On the contrary, a negative number indicates a negative relationship. The worth of a relationship influences its outcome, or whether people will continue with a relationship or terminate it. Positive relationships are expected to endure, whereas negative relationships will probably terminate. In a mutually beneficial exchange, each party supplies the wants of the other party at lower cost to self than the value of the resources the other party provides. In such a model, mutual relationship satisfaction ensures relationship stability.
Homans based his theory on behaviorism to conclude that people pursue rewards to minimize costs. The “satisfactory-ness” of the rewards that a party gains from an exchange relationship is judged relative to some standard, which may vary from party to party.
Ivan Nye came up with twelve theoretical propositions that aid in understanding the exchange theory.
Even though Homans took an individualistic approach, a major goal of his work was to explicate the micro-foundations of social structures and social exchange. By studying such forms of behavior he hoped to illuminate the informal sub-institutional bases of more complex social behavior, typically more formal and often institutionalized. According to Homans, social structures emerge from elementary forms of behavior. His vision of the underpinnings of social structure and institutional forms is linked to the actions of individuals, for example to their responses to rewarding and punishment circumstances.
Homans developed five key propositions that assist in structuring individuals' behaviors based on rewards and costs. This set of theoretical ideas represents the core of Homans's version of social exchange theory.
Social exchange theory is not one theory but a frame of reference within which many theories can speak to another, whether in argument or mutual support. All these theories are built upon several assumptions about human nature and the nature of relationships. Thibaut and Kelley have based their theory on two conceptualizations: one that focuses on the nature of individuals and one that describes the relationships between two people. Thus, the assumptions they make also fall into these categories. The assumptions that social exchange theory makes about human nature include the following:
The assumptions social exchange theory makes about the nature of relationships include the following:
The prisoner's dilemma is a widely used example in game theory that attempts to illustrate why or how two individuals may not cooperate with each other, even if it is in their best interest to do so. It demonstrates that while cooperation would give the best outcome, people might nevertheless act selfishly. All relationships involve exchanges although the balance of this exchange is not always equal. We cannot achieve our goals alone so as humans sometimes we have to become actors. In the world today we see actors as unemotional people but that is not the case once we reach our goals in the end.
Social exchange includes "both a notion of a relationship, and some notion of a shared obligation in which both parties perceive responsibilities to each other" John Thibaut and Harold Kelley proposed two comparison standards to differentiate between relationship satisfaction and relationship stability. This evaluation rests on two types of comparisons: Comparison Level and Comparison Level for Alternative. According to Thibaut and Kelley, the Comparison Level (CL) is a standard representing what people feel they should receive in the way of rewards and costs from a particular relationship. An individual's comparison level can be considered the standard by which an outcome seems to satisfy the individual. The Comparison Level for Alternative (CLalt) refers to “the lowest level of relational rewards a person is willing to accept given available rewards from alternative relationships or being alone” In other words, when using this evaluation tool, an individual will consider other alternative payoffs or rewards outside of the current relationship or exchange. CLalt provides a measure of stability rather than satisfaction. If people see no alternative and fear being alone more than being in the relationship, Social Exchange Theory predicts they will stay.
According to Kelley and Thibaut, people engage in Behavioral Sequence, or a series of actions designed to achieve their goal. This is congruent with their assumption that human beings are rational. When people engage in these behavioral sequences, they are dependent to some extent on their relational partner. In order for behavioral sequences to lead to social exchange, two conditions must be achieved: "It must be oriented towards ends that can only be achieved through interaction with other persons, and it must seek to adapt means to further the achievement of these ends". The concept of reciprocity also derives from this pattern. The reciprocity principle refers to the mutual reinforcement by two parties of each other's actions. The process begins when at least one participant makes a “move,” and if the other reciprocates, new rounds of exchange initiate. Once the process is in motion, each consequence can create a self-reinforcing cycle. Even though the norm of reciprocity may be a universally accepted principle, the degree to which people and cultures apply this concept varies.
Several definitions of power have been offered by exchange theorists. For instance, some theorists view power as distinct from exchanges, some view it as a kind of exchange and others believe power is a medium of exchange. However, the most useful definition of power is that proposed by Emerson, who developed a theory of power-dependence relations. According to this theory, the dependence a person has on another brings up the concept of power. Power differentiation affects social structures by causing inequalities between members of different groups, such as an individual having superiority over another. Power within the theory is governed by two variables : the structure of power in exchange networks and strategic use.
According to Thibaut and Kelley, there are two types of power: fate control and behavior control. Fate control is the ability to affect a partner’s outcomes. Behavior control is the power to cause another’s behavior to change by changing one’s own behavior.
People develop patterns of exchange to cope with power differentials and to deal with the costs associated with exercising power. These patterns describe behavioral rules or norms that indicate how people trade resources in an attempt to maximize rewards and minimize costs. Three different matrices have been described by Thibaut and Kelley to illustrate the patterns people develop. These are given matrix, the effective matrix and the dispositional matrix.
There are three forms within these matrices: Reciprocity, Generalized Exchange, and Productive Exchange. In a direct exchange, reciprocation is confined to the two actors. One social actor provides value to another one and the other reciprocates. There are three different types of reciprocity:
A generalized exchange involves indirect reciprocity between three or more individuals. For example, one person gives to another and the recipient responds by giving to another person other than the first person. Productive exchange means that both actors have to contribute for either one of them to benefit. Both people incur benefits and costs simultaneously.
Another common form of exchange is negotiated exchange which focuses on the negotiation of rules in order for both parties to reach a beneficial agreement. Reciprocal exchanges and negotiated exchanges are often analyzed and compared to discover their essential differences. One major difference between the two exchanges is the level of risks associated with the exchange and the uncertainty these risks create (ref). Negotiated exchange can consist of binding and non-binding negotiations. When comparing the levels of risk within these exchanges, reciprocal exchange has the highest level of risk which in result produces the most uncertainty. An example of a risk that could occur during the reciprocal exchange is the factor that the second party could end up not returning the favor and completing the reciprocal exchange. Binding negotiated exchanges involve the least amount of risks which will result the individuals feeling low levels of uncertainty. Whereas non-binding negotiated exchanges and their level of risks and uncertainty fall in between the amount of risks associated with reciprocal and binding negotiated exchanges. Since there is not a binding agreement involved, one party involved in the exchange could decide to not cooperate with the agreement.
Katherine Miller outlines several major objections to or problems with the social exchange theory as developed from early seminal works
Russell Cropanzano and Marie S. Mitchell discuss how one of the major issues within the social exchange theory is the lack of information within studies on the various exchange rules. Reciprocity is a major exchange rule discussed but Cropanzano and Mitchell write that the theory would be better understood if more research programs discussed a variety of exchange rules such as altruism, group gain, status consistency and competition.
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The most extensive application of social exchange has been in the area of interpersonal relationships. However, social exchange theory materializes in many different situations with the same idea of the exchange of resources. Self-Interest can encourage individuals to make decisions that will benefit themselves overall. Homans once summarized the theory by stating:
Other applications that developed the idea of exchange include field of anthropology as evidenced in an article by Harumi Befu, which discusses cultural ideas and norms. Lévi-Strauss is considered as one of the major contributors to the anthropology of exchange. Within this field, self-interest, human sentiment and motivational process are not considered. Lévi–Strauss uses a collectivist approach to explain exchanges. To Lévi-Strauss, a social exchange is defined as a regulated form of behavior in the context of societal rules and norms. This contrasts with psychological studies of exchange in which behaviors are studied ignoring the culture. Social exchanges from the anthropological perspective have been analyzed using the gift-giving phenomena. The concept of reciprocity under this perspective states that individuals can directly reward his benefactor or another person in the social exchange process. Lévi-Strauss developed the theory of cousin marriage based on the pervasiveness of gift-giving in primitive societies. The basis of this theory is the distinction between restricted exchanges, which is only capable of connecting pairs of social groups, and generalize exchange, which integrates indefinite numbers of groups.
Throughout the theory, we also end up losing relationships that we had because we feel they are no longer beneficial to us in any way. We feel like there is no longer any point of having any type of communication because there aren’t any rewards anymore. Once this happens, we look for new partners and resources so we can continue our networking. We go through this process on a day-to-day basis. A study titled, Factors Related to Initiating Interpersonal Contacts on Internet Dating Sites: A View From the social exchange theory applied this theory to new media (online dating). The study discovers the different factors involved when an individual decides to establish an online relationship. Overall the study followed the social exchange theory's idea, "people are attracted to those who grant them rewards".
Another example is Berg's study about development of friendship between roommates. The research found how social exchange processes changed during the year by measuring self disclosure. According to the study, the amount one person rewards another and the comparison levels for alternatives become the most important factors in determining liking and satisfaction. Auld, C. and Alan C. conducted a study to discover what processes occur and what is experienced during social leisure relationships. They use the concept of reciprocity to understand their findings. The study concluded that meeting new people is often given as a major reason for participation in leisure activities, and meeting new people may be conceptualized as an exercise of reciprocity. In this case, reciprocity is perceived as a starting mechanism for new social relationships because people are willing to be helped by others, expecting that the help will eventually be returned. A study conducted by Paul, G., called Exchange and access in field work tries to understand the relationships between the researchers and subjects. This study concludes that Bargaining helps to satisfy the more specific needs of the parties because greater risks are taken to obtain more information. This study also introduces the concept of trust (social sciences) to determine the duration of relationships.
Social Exchange theory has served as a theoretical foundation to explain different situations in business practices. It has contributed to the study of organization-stakeholder relationships and relationship marketing. The investment model proposed by Caryl Rusbult is a useful version of Social Exchange Theory. According to this model, investments serve to stabilize relationships. The greater the nontransferable investments a person has in a given relationship, the more stable the relationship is likely to be. The same investment concept is applied in relationship marketing. Databases are the major instrument to build differentiated relationships between organizations and customers. Through the information process, companies identify the customer's own individual needs. From this perspective, a client becomes an investment. If a customer decides to chose another competitor, the investment will be lost. When people find they have invested too much to quit a relationship or enterprise, they pour additional resources into the relationship to salvage their initial investment. Exchange has been a central research thrust in business-to-business relational exchange. According to the study conducted by Lambe, C. Jay, C. Michael Wittmann, and Robert E. Spekman firms evaluate economic and social outcomes from each transaction and compare them to what they feel they deserve. Firms also look for additional benefits provided by other potential exchange partners. The initial transaction between companies is crucial to determine if their relationship will expand, remain the same or will dissolve.
A study conducted by A. Saks serves as an example to explain engagement of employees in organizations. This study uses one of the tenets of social exchange theory to explain that obligations are generated through a series of interactions between parties who are in a state of reciprocal interdependence. The research identified that when individuals receive economic and socioemotional resources from their organization, they feel obliged to respond in kind and repay the organization. This is a description of engagement as a two-way relationship between the employer and employee. One way for individuals to repay their organization is through their level of engagement. The more engaged the employee are to their work, the greater amounts of cognitive, emotional, and physical resources they will devote to perform their job duties. When the organization fails to provide economic or emotional resources, the employees are more likely to withdraw and disengage themselves from their roles.
Social exchange theory is a theoretical explanation for organizational citizenship behavior. This study examines a model of clear leadership and relational building between head and teachers as antecedents, and organizational citizenship behavior as a consequence of teacher–school exchange.
The actors in social exchange are normally viewed as unemotional beings who have information, cognitively process it, and make decisions concerning the pattern and nature of exchange with others. Affect theory of social exchange complements social exchange theory by incorporating emotion as part of the exchange process. Formalized by Lawler (2001), the affect theory examines the structural conditions of exchange that produce emotions and feelings and then identifies how individuals attribute these emotions to different social units (exchange partners, groups, or networks). These attributions of emotion, in turn, dictate how strongly individuals feel attached to their partners or groups, which drives collectively oriented behavior and commitment to the relationship.
The affect theory of social exchange is based on assumptions that stem from social exchange theory and affect theory:
Affect theory of social exchange shows how the conditions of exchanges promote interpersonal and group relationships through emotions and affective processes. The theoretical arguments center on the following five claims:
Emotions produced by exchange are involuntary, internal responses. Individuals experience emotions (general feelings of pleasantness or unpleasantness) depending on whether their exchange is successful. These emotions are construed as a reward (or punishment) and individuals strive to repeat actions that reproduce positive emotions or avoid negative emotions.
Individuals attempt to understand what in a social exchange situation produces emotions. Individuals will use the exchange task to understand the source (partners, groups, or networks) of their emotions. Individuals are more likely to attribute their emotions to their exchange partners or groups when the task can only be completed with one or more partners, when the task requires interdependent (nonseparable) contributions, and when there is a shared sense of responsibility for the success or failure of the exchange.
The mode of exchange (productive, negotiated, reciprocal, or generalized) determines the features of the exchange task and influences the attribution of the emotion produced. The mode of exchange provides a description of the exchange task. The task features are defined by the degree of interdependence (separability of tasks) and shared responsibility between partners to complete the task. These features influence the strength of the emotion felt. Productive exchanges are interdependent and this high degree of nonseparability generates the strongest emotions. Reciprocal exchanges are separable which reduces the perceptions of shared responsibility. The exchange produces little emotional response, but individuals instead express emotions in response to the asymmetrical transaction. Generalized exchanges do not occur directly, but interdependence is still high and coordination between partners is difficult. Because there is no direct emotional foundation, emotions produced are low. Negotiated exchanges may produce conflicting emotions due to the mixed-motive nature of negotiations; even when transactions are successful, individuals may feel like they had the ability to do better, creating emotional ambivalence. Overall, productive exchanges produce the strongest attributions of emotions, generalized (indirect) exchange the weakest, with negotiated and reciprocal exchanges in between.
The attribution of emotions resulting from different exchange modes impact the solidarity felt with partners or groups. The different types of exchange (productive, reciprocal, and generalized) also impact the solidarity or identification that an individual will feel with their exchange partners or group. The different exchange types help dictate the target of felt emotions and influences an individual’s attachment. Affective attachment occurs when a social unit (partner or group) is the target of positive feelings from exchange; affective detachment (alienation) occurs when a social unit is the target of negative feelings from failure to exchange (see Lawler, 2001, page 331). Affective attachment increases solidarity. Similar to the attribution of emotion, productive exchange produces the strongest affective attachments, generalized exchange the weakest, and negotiated and reciprocal exchange are in between.
One condition for how social (partner or group) attributions can increase solidarity is by reducing self-serving attributions of credit or blame for the success or failure of the exchange. When individuals have group attributions for positive emotions stemming from success, this eliminates any self-serving biases and enhances both pride in the self and gratitude to the partner. However, group attributions for negative emotions stemming from failure do not eliminate self-serving biases, resulting in more anger toward the partner or group than shame in the self.
Lawler also proposes that the persistence (stability) and ability to control acts by the exchange partner (controllability) provide conditions for affective attachment by attributing credit or blame for the success or failure of the exchange. Following Weiner (1985)  affect theory of social exchange extrapolates that the combinations of stability and uncontrollability elicit different emotions. In social exchange, social connections can be sources of stability and controllability. For example, if an exchange partner is perceived as a stable source of positive feelings, and the exchange partner has control in the acts that elicit those positive feelings, this will strengthen affective attachment. Therefore, affect theory of social exchange proposes that stable and controllable sources of positive feelings (i.e. pleasantness, pride, gratitude) will elicit affective attachments while stable and uncontrollable sources of negative feelings (i.e. unpleasantness, shame, anger) will elicit affective detachment.
Through these emotional processes, networks can develop group properties. Repeated exchanges allow a network to evolve into a group. Affect theory highlights the contributions of emotions in producing group properties. Successful interactions generate positive feelings for the involved individuals, which motivates them to interact with the same partners in the future. As exchanges repeat, the strong relationships become visible to other parties, making salient their role as a group and helping to generate a group identity that continues to bind the partners together in a network. Affect theory predicts that networks of negotiated and reciprocal exchange will tend to promote stronger relational ties within partners; productive or generalized exchange will promote stronger network or group-level ties.