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Social Exchange Theory (SET) is based on the nothing that people think about their relationships in economic terms. People tally up the costs of being in a relationship and compare them to the rewards that are offered by being in that relationship It 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 all 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.

Basic Concepts
·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.)

The Social Exchange perspective argues that people calculate the overall worth of a particular relationship by subtracting its costs from the rewards it provides.

Worth = Rewards – Costs

If worth is a positive number, it is positive relationship. On the contrary, 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.

According to Laura Stafford (2008), economic exchanges and social exchanges have some differences: Social exchanges involve a connection with another person; social exchanges involve trust, not legal obligations; social exchanges are more flexible; and social exchanges rarely involve explicit bargaining.

“the guiding force of interpersonal relationships is the advancement of both parties’ self-interest” —— Michael Roloff (1981)

Social Exchange Theory posits that the major force in interpersonal relationships is the satisfaction of both people’s self-interest. Self-interest is not considered necessarily bad and can be used to enhance relationships. Interpersonal exchanges are thought to be analogous to economic exchanges where people are satisfied when they receive a fair return for their expenditures.

Assuptions
The assumptions that SET makes about human nature include the following:

·Humans seek rewards and avoid punishments.

·Humans are rational beings.

·The standards that humans use to evaluate costs and rewards vary over time and from person to person.

The assumptions SET makes about the nature of relationships include the following:

·Relationships are interdependent.

·Relational life is a process.

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. Basically, the Prisoner’s Dilemma goes like this: two people are arrested for a crime, but there isn’t enough evidence to outright convict one person or the other.

It is developed by Thibaut and Kelley to illustrate their first assumption.

Two Major Parts
The major parts of the theory: Evaluation of a Relationship and Exchange Pattern.

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"

Evaluation rests on two types of comparisons: Comparison Level and Comparison Level for Alternative.

The Comparison Level (CL) is a standard representing what people fell they should receive in the way of rewards and costs from a particular relationship. (Thibaut and Kelly)

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”

According to Kelly and Thibaut, people engage in Behavioral Sequence, or a series of actions designed to achieve their goal. When people engage in these behavioral sequences they are dependent to some extent on their relational partner.

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 Kelly to illustrate the patterns people develop. These are given matrix, the effective matrix and the dispositional matrix.

·the given matrix represents the behavioral choices and outcomes that are determined by a combination of external factors (environment) and internal factors（the specific skills each interactant possesses）

·the effective matrix “which represents an expansion of alternative behaviors and/or outcomes which ultimately determines the behavioral choices in social exchange”

·the dispositional matrix represents the way two people believe that rewards ought to be exchanged between them.

There are three forms within these matrices.

In a direct exchange, reciprocation is confined to the two actors. One social actor provides value to another and the other reciprocates.

A generalized exchange involves indirect reciprocity. One person gives to another and the recipient the recipient responds but not to 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.