Social Exchange Theory

Trust is a fundamentally social concept. For one to trust another person, the other person must have freedom to choose between cooperation and defection. People also talk about trust in a more general sense, e.g., trust in the government, trust in the society. In other words, trust is pervasive in dyadic interactions, as well as in the study of big institutions, which can create confusion at times.

There are many ways of studying trust. Here I review a few major sociological paradigms that are very useful in organizing the study of trust. A paradigm is a framework to formulate generalizations and theories based on shared assumptions. Different problems of trust, as we will see in a second, are most easily addressed under different paradigms.

We draw mostly from sociology -- the scientific study of society, especially the patterns of social interaction. We review three major sociological paradigms -- structural functionalism, conflict theories, and symbolic interactionism. Structural functionalism is particularly useful in understanding general trust; conflict theories are useful in understanding biases in online marketplaces; and symbolic interactionism is most useful for understanding dyadic interactions.

Three Sociological Paradigms

We review three popular sociological paradigms for the purpose of our study, structural functionalism, conflict theories, and symbolic interactionism [1].

• Structural Functionalism

Structure functionalism sees society as a complex system whose parts work together to promote solidarity and stability. This paradigm has a macro to middle-range orientation, which focuses on social structures that shape society as a whole and that society evolves like organisms. For structural functionalism, the social structures fulfill certain social functions, and could be manifest and latent social functions. For example, the school has a manifest function of educating children, with latent function of socializing them. Important theorists in structural functionalism include Emile Durkheim, Talcott Parsons, and Niklas Luhmann (an important figure in trust literature that we review in the next chapter).

Structural functionalism is especially useful in thinking about generalized trust -- how much people trust a platform, the society, an institution on the whole.

• Conflict Theories

One limitation of structural functionalism is that it views conflict as negative and cannot explain change very well. This is where conflict theory shines. Conflict theory views the society in a state of perpetual conflict due to competition for limited resources. The first theory was the class-conflict theory developed by Karl Max, but there are also other theories, such as the race-conflict theory, and gender-conflict theory.

Conflict theories are useful when we look into the dynamics of biases in online marketplaces. Different groups of people can be seen as competing over a limited set of resources online, and therefore resulting in conflicts.

• Symbolic Interactionism

The first two paradigms are inherently macro-level, focusing on society as a whole, while the third paradigm -- symbolic interactionism -- focuses on micro-level. Symbolic interactionism was conceived by conceived by George Herbert Mead and Charles Horton Cooley can find its roots in Max Weber's work, with the focus that sociology should focus on understanding individuals, the meanings they attach to people's personal situations. This approach views society in a constant state of re-creation through interaction and negotiation of meanings between individuals. In other words, social interactions between individuals create shared realities when people assign meanings to interactions.

Symbolic interactionism is useful for understanding the context of trust in different types of real world situations. Symbolic interactionism is also very compatible with research findings in social psychology and the focus of human-computer interaction research (understanding people).

Social Exchange Theory

As reviewed above, each paradigm is useful for specific problems at hand. Yet for the purpose of studying peer-to-peer exchange systems and online marketplaces, social exchange theory captures most of marketplaces -- although other paradigms are more useful for the study of a specific problem on theses marketplaces (e.g., conflict theories for biases, and symbolic interactionism for understanding motivations of users).

Social exchange theory is a framework that views social change and stability as a process of negotiated exchanges between different parties. Social exchange theory shares the assumptions with rational choice theory and structural functionalism.

Social exchange theory started developing with George Homans's work "Social Behavior as Exchange" [2], and further developed by Peter Blau {"blau1964exchange" | cite}} and Richard Emerson [3]. Homans's work emphasized individual behavior of actors in dyadic exchange. Blau's work on the other hand, focused on the economic and utilitarian perspective.

Emerson brought two perspectives together. In his 1976 paper Social Exchange Theory [3], Emerson analyzed and contrasted the psychological behavior focused approach to social exchange by Homans and the rational economic actor driven model by Blau. Emerson focuses primarily on exchange relations, which are the "building blocks for more complex social structures called exchange networks or corporate groups (involving intragroup exchanges)." An actor can be a person, a corporate group (or collective actor), or a role-occupant (i.e., individuals occupying certain roles such as a president of a company, a host on Airbnb, etc.) [4].

The Macro and Micro Spectrum

Another way the paradigms are useful is that they provide two extremes of a spectrum where we can lay our trust literature on: the micro extreme and the macro extreme. On the micro extreme, research in economics and psychology focuses trust decisions in dyadic interactions. On the macro extreme, researchers ignore any details about specific actors, but rather ask general questions about institutions.

Similar macro and micro spectrum exited in the study of economic actions in sociology as well. Granovetter pointed out that the most appropriate approach to study economic action is through the embedded model, neither over- or under-socialized [5]. I argue the study of trust and online marketplaces should also follow the embedded model, taking into considerations of bigger social structure while using dyadic level empirical data for hypothesis testing (see an example research using this method on Facebook buy and sell groups [6]). Previous research has also pointed out the similarity between social exchange and embedded analysis model. In 1992, Karen Cook and Joseph M. Whitmeyer published the paper, "Two Approaches to Social Structure: Exchange Theory and Network Analysis", which pointed out that "much convergence exists between exchange theory and network approaches to social structure."

Limitations

We will show in the next chapters how social exchange theory is useful for organizing trust literature on peer-peer marketplaces. However, social exchange theory does have several limitations.

• Rational assumption

Social exchange theory assumes rational decision. Later work in psychology showed that people are predictably irrational in their decision making [7] and [8]. My hypothesis is that such irrational decision making also exists in trust decisions (e.g., principles of behavior economics such as defaults will apply as well) and online marketplaces yet so far the studies on online marketplaces have all assumed rationality.

• Macro focus

Social exchange theory has a macro focus and useful for thinking about the marketplace as a whole. A lot of research on marketplaces however will be limited to dyadic interactions, which we turn to symbolic interactionism and communication theories rather than using the social exchange theory.

We now move on to review literature on trust, with the emphasize of organizing the literature on the spectrum of micro to macro.

References