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Social Exchange Theory is based on a central premise: that the exchange of social and material resources is a fundamental form of human interaction. With roots in earlier theories developed in cultural anthropology, neoclassical economics, and psychology. It explains social change and stability as a process of negotiated exchanges between parties. Social exchange theory says that all human relationships are formed by the use of a subjective cost-benefit analysis and the comparison of alternatives. For social exchange theorists, when the costs and benefits are equal in a relationship, then that relationship is defined as equitable. The notion of equity is a core part of social exchange theory. Social exchange theory is intimately tied to rational choice theory, and features all of its main assumptions.

Focus
Individuals interact for profit or the expectation of it. Out of a very basic desire to seek rewards and avoid punishments, individuals create sets of strategies that they believe will increase the odds in their favor. We learn what is rewarding by emitting an array of behaviors until one of them results in a positive reinforcement. So, throughout life, but beginning in infancy, we are trained so that our behavior and thought processes are consistent with the goals of the persons doing the socializing. The fact that those socialization agents are working for the State (i.e., the society, the culture, the larger set of values) brings the psychology of this developmental theory into the social world.

Assumptions
Basic Assumptions about Social Exchange Theory:

1. People who are engaging in interaction are trying to maximize their profit. Social Exchange    Theory is subjective and introspective. 2. Most gratification among humans is located in others. Dyads or small groups are the unit of analysis. 3. People have access to information about social, economic, and psychological aspects of interaction that allows them to consider alternative, more profitable situations relative to their present condition. 4. People rationalize and calculate the best possible means to compete in rewarding situations. The same is true for punishment aviodance situations. 5. People are goal oriented. Social Exchange is a Formal Theory. 6. Exchanges operate within the cultural norms of a culture. 7. Social credit is preferable to social indebtedness. 8. The more deprived the individual feels in terms of an act, the more the person will assign value to it.

Formula
The language of Social Exchange theory betrays its assumption that we are all in it for ourselves. The basic formula for predicting the behavior for any properly socialized individual in any situation is: Behavior (Profits) = Rewards of interaction - Costs of Interaction. Costs are any real or perceived debits resulting from a behavior.

Roots of Social Exchange Theory
Social Exchange can be traced to a variety of scholars. Adam Smith and David Ricardo from the study of economics suggested that any philosophy promoting any principle other than hard work for money was dangerous for the nation. Everyone must harbor strong beliefs in their own ability to generate income. Some, such as John Malthus argued against any form of public welfare, since the coddling of the poor would enable them to generate more of their pitiful kind (It is actually a kinder act to simply let them die away).

History
American sociologist George Caspar Homans is usually credited with the consolidation of the foundations of Social Exchange Theory. Homans’s article entitled “Social Behavior as Exchange” is viewed as the seminal work on this theory. Works by Richard Emerson, Peter M. Blau, and Karen Cook are also important and often reference Homans, as do many other articles and books on the subject.

Critiques
A synopsis of several major objections to or problems with the as described by Katherine Miller:


 * The theory reduces human interaction to a purely rational process that arise from economic theory.


 * The theory favors openness as it was developed in the 1970’s when ideas of freedom and openness were preferred, but there may be times when openness isn’t the best option in a relationship.


 * The theory assumes that the ultimate goal of a relationship is intimacy when this might not always be the case.


 * The theory places relationships in a linear structure, when some relationships might skip steps or go backwards in terms of intimacy

Applications
Currently, Social Exchange Theory materializes in many different situations with the same idea of the exchange of resources. Homans once summarized the theory by stating:


 * Social behavior is an exchange of goods, material goods but also non-material ones, such as the symbols of approval or prestige. Persons that give much to others try to get much from them, and persons that get much from others are under pressure to give much to them. This process of influence tends to work out at equilibrium to a balance in the exchanges. For a person in an exchange, what he gives may be a cost to him, just as what he gets may be a reward, and his behavior changes less as the difference of the two, profit, tends to a maximum.

Because the concept of exchange as stated by Homans takes place in a variety of human interactions, the theory is applied in many different situations but most commonly in those that fall into the fields of economics, psychology and sociology.

Other applications that developed include fields such anthropology, as evidenced in an article by Harumi Befu, which discusses cultural and social ideas and norms such as gift-giving and marriage.