That’s a very interesting area of study Karla, such as altruism plays a very important rol in the area of economics. As you mentioned before, economics isn’t only about supply and demand, to truly understand it we have to look very carefully into many different aspects, such as altruism, and how it is applied when we know the other people or not.
There´s a script of Adam Smith (1759), which I like very much because I think is very realistic, and says the following:
Every man, as the Stoics used to say, is first and principally recommended to his own care; and every man is certainly, in every respect, fitter and abler to take care of himself than of any other person. Every man feels his own pleasures and his own pains more sensibly than those of other people. The former are the original sensations; the latter the reflected or sympathetic images of those sensations. The former may be said to be the substance; the latter the shadow.
After himself, the members of his own family, those who usually live in the same house with him, his parents, his children, his brothers and sisters, are naturally the objects of his warmest affections. They are naturally and usually the persons upon whose happiness or misery his conduct must have the greatest influence. He is more habituated to sympathize with them. He knows better how every thing is likely to affect them, and his sympathy with them is more precise and determinate, than it can be with the greater part of other people. It approaches nearer, in short, to what he feels for himself.
I think that, even if it sounds crude, it’s very logic that people may act these way. For example, if my cousin opens a bakery, even if it’s a little further than the one I used to go, or even if it’s a little more expensive, it’s very likely that I will consume there instead where I used to consume. And that example applies to almost every product and to almost every person. Also there´s a paper (Rachlin, 2008) that explains it with more detail, and that you should read if you’re interested in this topic, because it points out the differences between altruism with relatives and non-relatives in a very interesting way.
On the other hand, you mentioned that people acted more altruistic when they believed they were being observed, which is completely logic, such as people may feel guilty if they act in a selfish way; also there’s an article which explains this aspect with more detail (Price, 2017).
In conclusion, altruism plays a very important role in economics and in our everyday life, so it’s very important to know how it can be affected and how it will affect our models; two important variables were mentioned here (relationship, guiltness), but there are some others such as income, environment, etc. that may also be important if we wanted to model altruism, so we must fully understand them and then we will be able to apply them.
Smith, A. (1759). Part IV: Of the Character of Virtue Consisting of Three Sections. Available at: https://www.marxists.org/reference/archive/smith-adam/works/moral/part06/part6b.htm [Accessed Feb 21, 2018].
Rachlin, H. and Jones, B. (2008). Altruism Among Relatives and Non-Relatives. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2561243/ [Accessed Feb 21, 2018]
Price, M. (2017). Why are we altruistic? Guilt may play a rol. Available at: http://www.sciencemag.org/news/2017/02/why-are-we-altruistic-guilt-may-play-role [Accessed Feb 21, 2018]