Social exchange theory is a sociopsychological and sociological perspective that explains social change and stability as a process of negotiated exchanges between parties. The theory is fundamentally oriented around rational choice theory, or the idea that all human behavior is guided by an individual's interpretation of what is in his best interest. Social exchange theory advances the idea that relationships are essential for life in society and that it is in one's interest to form relationships with others. Of course, whether or not it is in an individual's interest to form a relationship with a specific person is a calculation that both parties must perform. Nevertheless, social exchange theory argues that forming relationships is advantageous because of exchange. Each party to the relationship exchanges particular goods and perspectives, creating a richer life for both. Notably, while social exchange theory may reference the literal exchange of goods, it can also mean the exchange of more intangible elements. For example, it is in the interests of a dairy farmer and a vegetable farmer to form a relationship because they can exchange their material goods. The theory also applies to Jack and Jill who decide to get married for the emotional support they exchange with one another.
Social exchange theory is only comprehensible through the lens of rational choice theory. Rational choice theory supposes that every individual evaluates his/her behavior by that behavior's worth, which is a function of rewards minus costs. Rewards are the elements of relational life that have positive value for a person, while costs are the elements of relational life that have negative value for a person. Social exchange theory posits that individuals perform the calculus of worth when decided to form or maintain a relationship with another person. A good example of this would be proverbial "pro/con" list someone might make when deciding to stay or break up with her significant other.
Several assumptions undergird social exchange theory. The first is that humans seek rewards and avoid punishments. Second, humans are rational actors. Finally, social exchange theory acknowledges that the standards by which humans evaluate costs and rewards vary over time and from person to person. This means that what might seem rational to one person would seem completely irrational to another. However, so long as the individual's decision-making regarding the formation of social relationships involves an evaluation of worth, regardless of what that means to the person, the behavior fits the frame established by social exchange theory.