Who does this - substitute compassion for those in their own circle with compassion for strangers? Do you have compassion for a group, or for an individual? Groups do not really exist, other than as a collection of individuals. I have compassion, or feel pity, for some strangers, but I would never sacrifice my self or my loved ones for them. I might help a stranger, if it within my power, without sacrifice. I have a hierarchy of values, with my self and those I love at the top.

I do not think there is any biological reason behind the extent of compassion than tribalism. I really don't agree with the concept that compassion extend to what people might call "own people". I am a Nepalese living in USA. There are some Americans that I would consider "my people" and there are so many Nepalese that I don't care about. You also have to account the level of propaganda that is used to separate groups since the beginning of the childhood. This has been happening throughout history in every single empire or totalitarian regime. It's a very important tool to control the population. It is also understandable to care about someone you know more than care about someone you don't know at all. But I think human has the capacity to empathize with every being including the non-living entities unless the compassion is driven out of them by propaganda. I don't know about Americans but for a foreigner, it's easy to see the level of propaganda in US media that is consistently used for the purpose of dividing people. So, my conclusion is that compassion in human being extend to all beings depending on how close they are with them. And there is also a historical pattern among empires to try to drive that compassion out of people for each other and divide them in groups. The British called it "Divide and Rule".

If your "in-group" benefits from the exploitation and warmaking on the "out-group," then those with a wider, humane focus will be critical of their own "in-group" injustice towards others. Thus they will necessarily be emotionally hurtful to those causing a much greater physical hurt to others. It's called moral courage. Socrates and Einstein exhibited this. It's the opposite of tribalism which you seem to want.

People aren't always compassionate to strangers. There is a lot of ignoring of the suffering of strangers that happens all over the world every day. But, perhaps you are referring to instances in which it is simply easier to have compassion on a stranger that you identify with because you have found yourself in a similar troubling or dangerous situation. Also, you don't know the stranger enough to have anything against them, whereas "familiarity breeds contempt."

Does your phrase "out-group preference" indicate a bit of tribalism on your part?

Here is the classic song about this phenomenon:

It's not a substitution. Their intellect is compassionate - that's the caring for strangers. But the personality is uncaring and perhaps egocentric - hence the ignoring of other's feelings. Pointing out the disparity could help the person to use their intellect to improve their personal qualities.