For most of the past week, one question more than any other has been rattling round my head: is David Willetts a bit thick? Please understand my reservations in asking this. As a good Indian boy brought up to respect elders, such intergenerational impertinence doesn't come readily. And besides, Willetts is about as high-grade an intellect as Westminster has got: he writes books of political theory; he gives lectures on neuroscience; he even understands the benefits system, for heaven's sake. Put down Two Brains as slow off the mark, and another question soon follows: just what term do you dream up for Nicholas Soames?

But as universities minister, Willetts is the man in charge of introducing higher tuition fees. Faced with this delicate task, he has got his predictions, his proclamations and his maths badly wrong. That much was made clear last week, when universities submitted their proposed course levies – and Guardian research showed that almost three-quarters of English universities plan to charge the top whack of £9,000 a year for at least some subjects. Exactly the opposite of what the government promised.

Now, this isn't a general argument about how to fund higher education – we can have that out another time. For the next few minutes let's just take for granted the fact that tuition fees are going to rise from their current level of just below £3,500. And that the government will slash university funding. Oh, and that it's going to be really tough for school-leavers to find jobs over the next few years, which will just pile the pressure on degree-course places. Any minister working within those constraints would have struggled.

But a result would have been if the 123 English universities had announced a range of fees, giving prospective students and their families some measure of choice: £9,000 a year to don sub-fusc at some grandly quandrangled Oxbridge college, say; £7,500 to study economics at a Victorian redbrick; and £3,800 for an arts degree somewhere relatively new and breeze-blocked.

This was pretty much what Willetts promised – a smooth transition from the Soviet economics of higher education to a free-market nirvana. Had the reality conformed to rhetoric he could have boasted of a giant leap towards introducing a proper market in undergraduate education, where prices for degree courses reflect how much it cost to put them on and the income graduates can expect to see in return. You pays your money, and you takes your choice, Willetts could have said at that point. Although, being Willetts, he'd probably have said it in Latin.

Instead, we've got massive confusion. Oxford has said it will charge the full £9,000 – but so too will the University of East London, for all of its courses. London Met, University of Central Lancashire, Liverpool John Moore's: all of them will be £9k universities.

Had Willetts been a bit smarter and applied just a couple of insights from economics, he could have avoided this – and the costly turmoil that will surely come next.

What are they? The first is on something economists called anchoring. Even before the tuition fees vote at the end of last year, government ministers talked of fees of £9,000 a year. That figure is the one that has stuck in people's minds – which anchors the expectations of university bureaucrats and students' families alike. You don't need to be an economist to know about anchoring; you just need to have gone shopping. I'm not asking for £30, a market stallholder will say, holding aloft some Chinese-made electronic good – but that is the figure he wants you to bear in mind.

The other basic insight the universities minister ought to have borne in mind is that customers often deduce the quality of a product from its price. Want a machine to make popcorn? Researchers have shown that customers think the costlier poppers must be better – even when objective testers have shown the opposite. As marketing professor Akshay Rao put it in a 2005 paper: "Consumers consciously [choose] to rely on the price cue to make quality judgments, because such a process [is] cognitively efficient." When you don't know how to choose between the goods in front of you, going by price is as good a guide as any.

Now apply these two insights to a world in which university officials suddenly have to set their own prices for courses. Nine thousand pounds is the figure everyone is talking about and each institution needs to show that it is a competitive choice. So what do they do? Why, cluster around the £9k mark.

None of this is to excuse universities from kidding themselves that they're all the same rank. But it is to hold the government responsible for not having smoothed out the process, or prevented the pandemonium that will come. As Peter Dolton, an education economist at Royal Holloway University of London, puts it: "Don't underestimate the chaos there'll be over the next year or two." He predicts that there will be a slump in demand for the bottom-ranking 20 or 30 institutions, which will lead to them suffering "severe financial difficulties".

So, let's go back to the original question: is the man in charge of making these changes a bit daft? I would say that anyone who ignored such rudimentary economic insights must be a bit thick. Either that or he's tried to be too clever by half, which – when you're dealing with lots of people trying to make tough decisions – usually has the same disastrous effect.