Social Exchange Theory

Social Exchange Theory - toolshero

This article provides a practical explanation of the Social Exchange Theory. After reading, you will have a basic understanding of this powerful management tool.

What is the Social Exchange Theory?

The Social Exchange Theory is a theory that describes relationships as result-oriented social behaviour. According to this theory, people choose to enter into and maintain relationships in order to then maximise the benefits of these relationships, while minimising the costs. The Social Exchange Theory is an important concept in psychology and sociology. The theory basically says that everyone, prior to entering into a relationship, conducts a cost-benefit analysis in order to assess the risks and rewards that it would bring. If the risks outweigh the rewards, the relationship will be ended. According to the theory, social exchange occurs in romantic relationships, friendships, business relationships, and even just the exchange with a stranger asking for directions.

The Social Exchange Theory is based on a few principles related to human behaviour and people’s attitude toward relationships. The first principle is that people tend to avoid punishment and look for rewards. Another principle is that every individual is motivated by the question, what’s in it for me? The third principle is that this cost-benefit analysis will already be conducted before the relationship is actually formed. Finally, the Social Exchange Theory suggests that people are aware that rewards can vary from person to person. That is why they are highly selective when it comes to allowing people in their private circle.

The bulk of research into social exchange theories was done in the early twentieth century. The most renowned are those of Harold Kelley, John Thibaut, Peter M. Blau, and Richard M. Emerson.

Social Exchange Theory - toolshero

Social Exchange Theory Core Principles

The Social Exchange Theory is more complex than a simple cost-benefit model used in business. It suggests that people can form a positive or negative opinion on a relationship based on a combination of three factors.

Costs vs Benefits

The costs of a relationship refer to what people see as the negative aspects. These could be literal costs, such as giving out loans, or things like effort and time. There are even extreme forms of risks or costs, ranging from humiliation and physical violence to more subtle expressions like a frown.

Rewards come in many shapes and sizes as well: money, gifts, social acknowledgement, and subtle things like a smile, pat on the shoulder, wink, or a nod. Relationships are positive when the advantages outweigh the disadvantages, for both parties. We speak of negative relationships when the costs and risks outweigh the benefits.

Keeping the above core principle of the Social Exchange Theory in mind, you can explain the theory as a formula that predicts human behaviour:

Profit from relationships = rewards of the interaction – costs of the interaction

Level of expectation and comparison

In addition to costs and benefits, expectations also play an important role for the social exchange process in relationships. Because people are constantly weighing the upsides and downsides of a relationship, they form a comparison level that is influenced by social expectations and past experiences. Bad friendships often result in a low comparison level at the start of a relationship. A person who has always had a close group of friends that provided lots of support usually has a higher comparison level.

An example. It’s possible that a relationship, in which both partners openly showed each other a lot of affection in the form of compliments and such, comes to an end. That will raise the expectation level for the next partner. If the new partner has a more reserved personality, the other person is likely to look for alternatives.

Alternatives

Imbalance between costs and benefits in a relationship makes people look for alternatives. This usually goes in one of two ways. The person looks for alternatives and finds one. Or they realise that there is no better one than the current partner or friendship after conducting another cost-benefit analysis. In that case, they generally reflect and reassess the relationship with a lower comparison level.

Advantages of Social Exchange Theory

  • It says a lot about how relationships are formed and maintained
  • The theories applies to people everywhere
  • It teaches individuals about the give and take of relationships
  • It’s easy to understand
  • It’s a theory based on scientific research

This means you can apply the Social Exchange Theory in a large number of situations and circumstances.

Relationships

The Social Exchange Theory is often used to explain the behaviour of people who are in a relationship crisis. For instance, in 1995 Rusbult and Martz explained why some women and men continue to stay in abusive relationships. They explain that when a lot has been invested, such as having children or a mortgage, and alternatives are limited, such as not having a place to go, it’s still better to stay.

Business

The Social Exchange Theory has also served as a theoretical basis to explain various business situations. Caryl Rusbult, for example, proposed an investment model based on the theory. According to that model, investments serve as relationship stabilisers. The larger the amount of investment, the more stable the relationship is likely to be. This concept is applied in relationship marketing. Data is one of the few things organisations can use to improve customer relations. The customer is considered to be an investment because the data shows the individual needs of customers.

Involvement

The Social Exchange Theory is also used as an example to explain employee engagement within an organisation. Research done in this respect showed that, when employees receive economic and social-emotional resources from their organisation, they feel obligated to give something back to the organisation. This often translates into an extrinsically motivated engagement.

Culture

The Social Exchange Theory has also been found to be of value when studying different societies and their cultural values. Every culture has its own, unique way to weigh costs and benefits when it comes to friendships and romantic relationships. Asian societies attach a lot of value to collectivity and harmony. In those cultures, sacrificing certain costs such as freedom or happiness are given less weight than in more individualised countries.

Now it’s your turn

What do you think? Do you recognise this explanation of the Social Exchange Theory? How important is give-and-take in relationships to you? Do you see the human behaviour described in this article in your own environment? Any suggestions or comments?

Share your experience and knowledge in the comments box below.

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More information

  1. Cropanzano, R., & Mitchell, M. S. (2005). Social exchange theory: An interdisciplinary review. Journal of management, 31(6), 874-900.
  2. Emerson, R. M. (1976). Social exchange theory. Annual review of sociology, 2(1), 335-362.
  3. Cropanzano, R., Prehar, C. A., & Chen, P. Y. (2002). Using social exchange theory to distinguish procedural from interactional justice. Group & Organization Management, 27(3), 324-351.
  4. Konovsky, M. A., & Pugh, S. D. (1994). Citizenship behavior and social exchange. Academy of management journal, 37(3), 656-669.

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Ben Janse
About the Author

Ben Janse is a young professional working at ToolsHero as Content Manager. He is also an International Business student at Rotterdam Business School where he focusses on analyzing and developing management models. Thanks to his theoretical and practical knowledge, he knows how to distinguish main- and side issues and to make the essence of each article clearly visible.

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