Sociological Theory/Exchange Theory

Theory
Social Exchange Theory (sub of Reinforcement): -assumes freedom of choice and situations that require decision making; cost/benefit analysis -people are hedonistic - they try to maximize rewards and minimize costs -views social relationships primarily as exchanges of goods and services among persons -include equity theory here as: predicting the conditions under which people try to change or restructure their relationships; a state of equity exists in a relationship when participants feel that the rewards they receive are proportional to the costs they bear

Social exchange theory is a social psychological 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. For example, when a person perceives the costs of relationship as outweighing the perceived benefits, then the theory predicts that the person will choose to leave the relationship.

The early permutations of Social Exchange Theory stem from Gouldner's (1960) norm of reciprocity, which simply argues that people aught to return benefits given to them in a relationship. Later modifications to this theory focus attention on relational development and maintenance rules (see Murstein et al.) [added by J.P. Boren, 2005]

For social exchange theorists, when the costs and benefits are equal in a relationship, then that relationship is not 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.

Rational choice theory is a way of looking at deliberations between a number of potential courses of action, in which "rationality" of one form or another is used either to decide which course of action would be the best to take, or to predict which course of action actually will be taken. Such a perspective finds itself in models for both human behavior and behavior of non-human but nonetheless potentially rational entities, such as corporations.

Obviously, what is taken as "rational" is of chief importance here. This varies with context:
 * The technical meaning in economics is about preferences: preferences are defined to be rational if they are complete and transitive. That is, that the decision maker is able to compare all of the alternatives, and that these comparisons are consistent.  See the preferences page for further explanation.
 * If uncertainty is involved, then the independence axiom is often assumed in addition to rational preferences.
 * Rationality can also mean that the decision maker always chooses the most preferred option, as in the Utility Maximization Problem.

Often, to simplify calculation and ease prediction, some rather unrealistic assumptions are made about the world. These can include:


 * An individual has precise information about exactly what will occur under any choice made. (Alternatively, an individual has a reliable probability distribution describing what will happen under any choice made.)
 * An individual has time and ability to weigh every choice against every other choice.
 * An individual is fully aware of all possible choices.

Assumptions such as these have sparked criticism from a number of camps. Some people have tried to create models of bounded rationality, which try to be more psychologically plausible without giving up completely on the idea that some kind of reason underlies decision-making processes.

Why rational choice theory?
One question that can be asked is why people try to base their models on concepts such as "reason", "preferences", and what is implied by them, free will. Some potential reasons:


 * They see people as "rational" beings, and thus believe that a model in which they are represented as such should be reasonably accurate
 * Assumptions of rationality have useful formal properties

Various researchers has found some limits to this theory, under the name of bounded rationality, an element used for example in behavioral economics.