Dissecting Social Capital: Self-Interest, Reciprocity and Repeated Games

A friend recently told me about an awkward encounter. A mutual acquaintance from our middle school days—someone he runs into occasionally—reached out asking for the personal number of a semi-famous person my friend knew professionally.

"Hey, could you pass along X's number? You must have it since she was on your show."

My friend felt an immediate wave of irritation, though he couldn't quite articulate why. Yes, he technically had the contact. Yes, he could probably pass it along. But something about the way she'd asked for this favor struck him (and me) as quite off-putting.

I want to unpack the “Why?” by discussing social capital - specifically, how we accumulate, spend, and sometimes inadvertently destroy this invisible currency that governs our relationships.

What is Social Capital?

I like the definition proposed by Robinson, Schmid and Siles in this paper, in which the authors argue that social capital does indeed behave like capital. They define social capital as follows:

Social capital is a person's or group's sympathy toward another person or group that may produce a potential benefit, advantage, and preferential treatment for another person or group of persons beyond that expected in an exchange relationship.

In this paper, the researchers defend this concept against critics who argue that social capital doesn’t behave like capital, by listing the properties of capital shared by social capital:

Transformation capacity: Just as physical capital (like a factory) transforms inputs into outputs, social capital transforms sympathy into various services—economic benefits, social support, validation, and information sharing.

Durability: Like physical capital that retains its identity after use (a tractor remains a tractor), social capital—especially family bonds—can remain intact even after multiple uses.

Flexibility: Similar to how some machines can serve multiple purposes, social capital can be used for various benefits—from emotional support to economic assistance.

Substitutability: Just as tractors can be replaced by animals for pulling, social capital can substitute for other forms of capital. For instance, sympathy can substitute for monitoring costs in business relationships.

Decay: Like physical capital that deteriorates without maintenance, social capital can decay through lack of contact or overuse.

Think of social capital as a store of felt obligation that can be leveraged in different ways. Someone might help you because of emotional closeness, moral obligation, transactional reciprocity, or community norms. What matters is that your interests influence their decisions, even if mildly—you're included in their calculus.

Your total social capital can be roughly understood as a product of the breadth and depth of your social bonds.

Theory of Self-Interest and Relationships

Understanding social capital requires examining the underlying mechanics of all relationships: human interactions can be explained in terms of rational self-interest, though at varying timescales and with different levels of flexibility.

The relationships we call "transactional" are usually those that impose explicit and inflexible conditions. For example, if you pay for a cup of coffee, you expect a cup of coffee within the next few minutes. It's not acceptable for the barista to pay you back by being there for you when your girlfriend dumps you, nor is it okay for them to give you the coffee three months from now.

By contrast, most romantic relationships don't impose the same restrictions on the exchange of benefits. If your wife is going through a hard time at work, it's usually not wise to offer a shoulder to cry on and then immediately ask her to run errands for you as payback. Yet you still have expectations—you might want her to listen to your workplace drama later, or provide emotional support in other ways.

In long-term relationships and lasting friendships, the terms of exchange aren't set in stone. But people still understand they can't shirk providing value to the other party forever. It doesn't have to be today, and you have flexibility in how you contribute, but value must accrue.

This flexibility is valuable because it dramatically increases the potential for positive-sum exchanges. Good friends can do things that cost them little but benefit their friends hugely. We can get help during difficult times without worrying about immediate repayment. Close business associates can work together without contractually covering every possible disagreement, trusting they'll resolve issues in good faith. The mechanism that facilitates this flexibility is trust.

How is trust built?

Trust necessitates some level of predictability and reduction in information asymmetry. This doesn't mean predictability in terms of how someone will return a favor, which would in fact be something that you need less of in a trusting relationship. But one must possess some knowledge of the other person's boundaries, values, dispositions, and preferences.

One piece of information that's particularly useful to gather about someone concerns their incentives. Alignment of incentives can build trust, but trust also makes the explicit alignment of incentives less necessary.

For example, you hire someone to work for you and decide to give them equity-based compensation to align incentives. All else equal, this enables you to delegate more work to them without having to forecast or monitor excessively. Now, after working with them for a couple of years, you realize they're the type of person who tries to operate as ethically as possible, even under duress and even when they have the ability to cheat or free ride. Now, you can afford to do projects with them where incentives aren't or can't be as tightly aligned, thereby increasing the set of possible interactions.

Over time, you start to develop a friendship with them and care about them. This isn't consciously mediated through some benefit they can provide, but because it just feels good to be good to people you like and care about. You do right by them because it feels good to you, just as they do right by you (and others) because they consider themselves to be a deeply ethical person, and it is inherently rewarding for them to be ethical.

This evolution illustrates how relationships can operate at different levels depending on the degree of trust and internalized care:

Level 1: I will do X for you because you have agreed to do Y for me (standard consulting contract)

Level 2: I will be generally nice and helpful to you because I expect you to be generally nice and helpful to me—whether because we both want the same things, because I know you know that I can hurt you if you hurt me, or because I know you to be an ethical person

Level 3: I will be generally helpful to them because it makes me feel good to be generally helpful to them (this could be because I like you, or because we share values such that it's intrinsically good for me to help you)

This progression leads us to what might be the least romantic but most beautiful definition of love: the significant internalization of an external party's utility function.

(Speaking of relationship models, my wife, Regan explores this topic in her piece "Are all relationships transactional?" which I highly recommend reading)

Acquiring Social Capital

If you don't have family, ideological, or institutional bonds to grease the wheels, spending time with someone is the most straightforward way of building trust. The more time you spend with someone, the more confident you can be that they can't exercise full conscious control over the signals they're sending you. In other words, you can trust the information you're gathering about them.

This process is made easier by what people call "personality" or "charisma." If spending time with you is generally pleasant or has a positive payoff, this trust-building process becomes a benefit, not a cost, to the other party.

I won't try to break down charisma completely, but it's worth thinking about both how to avoid being unpleasant to others and how to actively provide positive value—whether through listening skills, humor, knowledge, or other contributions.

I've seen people make the mistake of trying to talk about the future value they can provide, sometimes in the form of what is known as "bragging." Remember that some signals are easy and cheap to fake, like saying you're a great negotiator or that you have charisma. If you make these claims without providing reliable evidence that can't be faked, people will mostly take away that you're keen to show them how valuable you could be to them—which is ironically counterproductive.

Some people—inspired by Ben Franklin—talk about how asking people to do favors for you can counter-intuitively be a way of building trust. However, there are two important pre-conditions: the favor probably can't be too burdensome and should preferably be flattering to them. More importantly, the favor needs to be acknowledged, setting up an expectation that benefits can accrue to them in the future.

Acknowledging reciprocity

There's something slightly paradoxical in most human relationships: people generally don't like making explicit the underlying transactional structure of relationships, but this structure is revealed when people fail to appreciate the principle of reciprocity that relationships are built on.

The extent to which Person A can reasonably value and invest in a relationship cannot be divorced from the extent to which Person B values and is willing to invest in the relationship. When one party acts in a way that signals they're in a one-shot or short-term game rather than a repeated game, it can shake the foundations of a relationship.

It's worth thinking through how you would behave if you were truly using someone as a means to an end for some immediate near-term benefit and nothing else. If someone was of no value to you apart from the fact that you want them to introduce you to someone else, you would just make the ask—no matter what it costs them, and regardless of how much trust had already been established.

This gets us to solving the puzzle that opened this post. If a close friend or family member was dealing with financial issues or needed significant help due to health problems, most of us would offer our help or at least want to help when asked. We do this because we care about their welfare and because the relationship has enough built-up trust and reciprocity to handle such requests.

But if you ask an acquaintance for a significant favor—something that does cost them something—it's crucial to acknowledge that they're doing a favor. You might say something like "I know this is asking a lot" or "I really owe you one for this." If you don't do this, the signal you send is that whatever you need from them matters more than preserving the quality of your relationship with them. The relationship that makes the favor possible is revealed to be secondary to the favor itself.

This is exactly why my friend was right to feel annoyed. The person asking for the phone number didn't even demonstrate that they cared about what this request might cost him—the awkwardness of approaching a professional contact with a personal ask, the potential strain on his reputation, or the fact that he'd be spending relationship capital with the celebrity on someone he barely knew. Her casual "You must have her number since she was on your show" treated their acquaintanceship as purely instrumental, signaling that their barely-maintained social bond existed solely for her benefit. She had, in essence, revealed that she thought of him not as a person whose welfare mattered, but as a means to an end.

Conclusion

Understanding social capital serves a dual purpose: it helps us avoid social faux pas while reminding us not to become calculating relationship accountants. The awkward phone number request reveals why awareness matters—recognizing that relationships have underlying structures of give and take helps us navigate them with grace. But this understanding should inform our approach, not dominate our thinking.

The healthiest relationships exist when we have a default of cooperation and kindness, combined with an intuitive understanding of reciprocity. We extend help and care freely, while still retaining enough social awareness to recognize when someone views the relationship differently than we do. This balance prevents both the kind of blindness that leads to exploitation and the transactional cynicism that kills genuine connection.