Social exchange theory

Social Exchange Theory is a behavioral theory that explains how individuals manage relationships with others, based on the notion that relationships are formed through the exchange of resources. It states that individuals within a relationship seek to maximize their rewards while minimizing their costs. From the perspective of management, Social Exchange Theory can be used to understand why people join and stay with organizations, and how relationships between organizations, customers, and employees are built and maintained. It can also be used to assess the effectiveness of compensation structures and other incentives.

Example of social exchange theory

• A classic example of Social Exchange Theory is a business transaction. In this case, both parties in the exchange are looking to maximize their rewards (profit for the business, satisfaction for the customer), while minimizing their costs (time, effort, money). Companies will often use incentives and rewards to encourage customers to make a purchase, as this helps to create a positive exchange between the customer and the business, creating a mutually beneficial relationship.
• Social Exchange Theory can also be applied to romantic relationships. In this case, two people will often exchange affection, support, and other resources in order to maintain the relationship. In a healthy relationship, both people should be looking to maximize their rewards (happiness, companionship, love), while minimizing their costs (time, effort, energy).
• Social Exchange Theory can also be applied to friendships. Friends will often exchange resources such as time, support, and advice in order to maintain the relationship. Friends will usually strive to maximize their rewards (companionship, fun, support) while minimizing their costs (time, effort, energy).

When to use social exchange theory

Social Exchange Theory can be used in a variety of situations, including workplace relationships, customer relations, and employee engagement. Specifically, it can be used to:

• Understand the motivations behind why people join and stay with organizations - by examining the exchange of rewards and costs associated with a job.
• Assess the effectiveness of compensation structures, including salaries, bonuses, and other incentives.
• Examine the dynamics of relationships between organizations, customers, and employees.
• Assess the effectiveness of communication strategies, such as advertising and public relations.
• Understand why people stay in relationships, even when the costs outweigh the rewards.
• Establish the best ways to build and maintain long-term relationships.

Types of social exchange theory

Social Exchange Theory consists of a number of different perspectives and theories that attempt to explain how relationships are formed and maintained. These include:

• Equity Theory - This theory suggests that relationships are based on an exchange of resources, and that individuals in a relationship strive to maintain a balance between the rewards and costs they experience.
• Exchange Theory - This theory states that individuals within a relationship seek to maximize their rewards while minimizing their costs.
• Reciprocity Theory - This theory suggests that individuals are motivated to reciprocate positive behaviors they receive from others.
• Social Norm Theory - This theory explains that individuals are motivated to conform to the social norms of their environment.
• Social Capital Theory - This theory suggests that relationships between individuals are strengthened by the exchange of resources, such as knowledge, information, and support.
• Network Theory - This theory explains that individuals form relationships with others based on the rewards and costs associated with those relationships.

Advantages of social exchange theory

The advantages of Social Exchange Theory are as follows:

• It provides an explanation for why individuals choose to engage in a relationship and how they continue to remain in this relationship.
• It can help organizations to better understand and manage employee motivation and performance.
• It provides a framework for understanding the dynamics of power and dominance in relationships.
• It can be used to assess the effectiveness of compensation structures and other incentives.
• It can help organizations to better understand customer satisfaction and loyalty.
• It can help organizations to better understand and address conflict between employees.
• It allows for the consideration of both tangible and intangible rewards that are exchanged between individuals.

Limitations of social exchange theory

Social Exchange Theory is a powerful tool to understand and analyze interpersonal relationships, but it has its limitations. These include:

• Ignoring the influence of emotion in relationships - Social Exchange Theory does not take into account the role of emotion and feelings in people’s decisions to enter or maintain relationships.
• Failing to consider external factors - Social Exchange Theory does not consider external factors such as culture, society, or historical context that may influence the formation and maintenance of relationships.
• Over-simplifying complex relationships - Social Exchange Theory assumes that relationships are based solely on the exchange of resources and ignores other aspects of relationships that may be more important such as trust, communication, and shared values.
• Over-reliance on rational decision making - Social Exchange Theory assumes that individuals make decisions based solely on rational calculations. This ignores the role of emotion and intuition which may also play a role in decision making.

Social exchange theory — recommended articles

Social identity theory — Social cognitive theory — Cognitive dissonance theory — Social influence theory — Power distance index — Shared mental models — Cultural distance — Personal ethics — Primary stakeholder

References

• Cropanzano, R., & Mitchell, M. S. (2005). Social exchange theory: An interdisciplinary review. Journal of management, 31(6), 874-900.
• Cook, K. S., Cheshire, C., Rice, E. R., & Nakagawa, S. (2013). Social exchange theory. Handbook of social psychology, 61-88.
• Emerson, R. M. (1987). Social exchange theory.