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Smalltalk adds to game lore and it is a means to acquire unique rewards:

1. Trade Agents
2. Discounts with NPCs on purchases
3. Skill visibility for hirable NPCs
4. Virtual Seminars
   
   

Please follow the above links for details but in short:

1. Trade Agents provide up-to-date information on trades at stations.
2. Smalltalk discounts are different to other discounts so they are a stackable, additional option.
3. You can ask for info on the better-skilled NPCs in the area.
4. Virtual Seminars allow you to train one of your NPC's skills (addition of a star).
   
   

While <player> is docked on stations, NPCs will occasionally start talking, and when they do a speech bubble appears over their head to help identify them in a crowd.

This is the cue to undertake an optional minigame if we wish. There are quite a few conversation topics, from the mundane (eg chatting about holodancers) to the serious (eg concerns about messing with AI). Since they add colour to the game world, they can be interesting; unfortunately the discussions cannot be sped up or skipped and there are only a finite number, so in the end it is possible to get frustrated by them. This is where the 'Borderless Windowed mode' comes in handy as Alt+Tab to (eg) a website cuts the audio but lets you see how things progress, if you keep the website window clear of the subtitles. Similarly, while hunting for Smalltalk, you can do the same thing to pass the time while waiting for someone to start speaking. That's what I do anyway 

Finding smalltalk

As the chance of an NPC talking is random and not all NPCs will necessarily be the kind you would like to talk to, it is sensible to find a spot with lots of NPCs to increase the chance of a useful one talking early. Smalltalk is available only once per NPC; if you enter smalltalk then win, lose or cancel the 'talk, that NPC will not proffer smalltalk again until you leave the zone

Good places to find groups of NPCs:

1. Bunk rooms on all docks tend to hold up to ~8 NPCs so smalltalk normally starts within 10-20 seconds.
2. Generally, Administration platforms house permanent unhirable station crew, which can help when recruiting Trade Agents.
3. A handy place is the Engineering platform as groups of NPCs tend to be right at the docking platform, although there tend to be fewer NPCs per dock
4. In Albion or DeVries a good spot is the Trade platform since groups may hang around at the end of the first corridor.
5. In Fields Of Opportunity|Verdant Profit|TU Overwatch, there are normally many Teladi in the main central docking area.

If you 'encourage' an NPC trader by selling something to them, or preferably buying something from them, the chance of them smalltalking appears to increase slightly. So hunt out those junk dealers & buy scrap metal from them personally if you're after a decent ship crew! Simply talking to an NPC can increase the chance of smalltalk happening, even if you only ask the way to another NPC.

Potential rewards from success* at:

level 1 smalltalk (numbers corresponding with radial menu):

1. Ask for: Discount... (If NPC is a Trader they will offer a Personal discount for their wares (eg marines or rough gemstones) as well as a Station discount option (these are mutually exclusive); for all other NPCs the discount will apply to the (docked) station only - see below).
2. -not used-
3. Ask about: Job Applicant (offers the location and skills of a different NPC available to hire by <player> on the current dock). If no other hirable NPC exists this option will be unavailable
4. Trade Updates (see below as not all NPCs offer it); they unlock continuous, real-time market info for the NPC's station. This does not have the same effect as posession of Trading Computer sofware.
5. Give: Item... (give a craftable gift that unlocks level 2 of smalltalk).
6. -not used-

Level 2 smalltalk (only available via the "Give: Item" option in level 1)

1. Ask for: Discount... (a higher-quality version of the discount available at level 1 above)
2. -not used-
3. Ask about: Job Applicant (different to level 1 and 3 smalltalks, so perhaps the range setting is station or possibly a higher-lvl NPC will be offered? - needs checking)
4. -not used-
5. Continue: Smalltalk (hard)  (unlocks L3 smalltalk)
6. -not used-
   

Level 3 smalltalk** (only available via level 2 smalltalk option 5)

1. Extended Discount. (lasts a long time; probably the same numerical discount as level 2)
2. -not used-
3. Best Job Applicant (offers the location and skills of an NPC of a chosen type with the best, previously unknown skills, in the Zone)
4. Ask for: Employee training (a semi-predictable source of Virtual Seminars - see below)
5. -not used-
6. -not used-

* A score of 7+ or more across 2 or 3 minigames. 8+ is required across the first 2 minigames to access L2 smalltalk (if you require 3 games the L2 'Give..' option is disabled)) 

** A score of 4+ for all 3 minigames.