Social exchange theory is a sociological and psychological theory that studies social behavior in the interaction of two parties that implement a cost-benefit analysis to determine risks and benefits. It is a concept based on the notion that a relationship between two people is created through a process of cost-benefit analysis. In other words, it is a metric designed to determine the effort poured in by an individual in a person-to-person relationship. The theory focuses on face-to-face relationships and isn’t meant to measure behavior or change at a societal level.

The basis of social exchange theory is to explain social change and stability as a process of negotiating exchanges between parties. These changes can occur over a persons life course through the various relationships, opportunities, and means of support. The theory has been generally analyzed by comparing human interactions with the marketplace. Under this perspective, every individual is trying to maximize their wins.

Social exchange theory can be applied to many situations, including romantic relationships, friendships, workplace behavior, organizational management, and business. It is not one theory but a frame of reference within which many theories can speak to another, whether in argument or mutual support. All these theories are built upon several assumptions about human nature and the nature of relationships.

The social exchange theory is considered by many psychologists to be highly individualistic, which means that it assumes that the individual assesses all human social interactions based on his or her personal gain. This supposition denies the existence of true altruism and suggests that all decisions are made from a self-serving motivation. Critics often point to this particular aspect of the theory when trying to identify flaws in the logic or structure of the core arguments.