To discuss social interactions, would which of the two best fit in different contexts. And are there different words that are used if the context is formal or casual?
is the only suitable term, as it implies that the interacting parties themselves determine the aspects of their interaction.
describes effects due to some external force (hardly applicable to people at all unless referring in a quirky way to laws of nature, e.g. mutual attraction of two people in zero-gravity space or bouncing back from each other when colliding on an ice rink) or effects whose origin is beyond conscious psychological processes (like feeling physical attraction).
(There are people who would deny that
Interaktion requires consciousness. However, if you subscribe to this point of view, the term loses much of its discriminatory power and certainly subsumes non-social stimulus-response situations)