Here, is the difference between being a pure observer of versus a full participant in social events.
The researcher is not visible to or acknowledged by participants in this type of observation. As participants are more likely to act naturally when they are unaware that they are being watched, it is one technique to reduce the Hawthorne Effect.
In this situation, the participants are aware of and familiar with the researcher, and they frequently are aware of the observer's objectives for the research.
The researcher is here actively interacting with the participants. She is not a disinterested third party, but more of a friend or co-worker. Participants are fully engaged, although they are still aware that the researcher is present.
This researcher is completely covert, almost like a spy. Here, the observer actively participates in the actions of the participants.
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