Next time someone knocks on your door or telephones you and tries to persuade you to switch electricity suppliers, try to do better than a fellow who, to spare his blushes, I’ll just call ”Mr Blockhead”. According to research by two British economists, Chris Wilson and Catherine Waddams Price, Mr Blockhead managed to make himself ₤100 a year worse off by switching, rather than choose a tariff that would have saved him ₤50 a year.

Mr Blockhead isn’t alone. Another genius had such an uncompetitive tariff that he could have saved ₤150 a year - but he somehow managed to find an even worse tariff and switched to it. Of 250-odd people who had moved supplier with the avowed purpose of saving money, most picked up less than half the available gains, and about a quarter actually made themselves worse off.

For some people, this is reassuring confirmation that they’re not alone. For economists, it’s worrying. We’re now used to analysing markets where customers don’t always switch to the cheapest deal. Sometimes it is costly to search for alternatives. For example, you might want a cheaper cup of coffee, but not want to wander around trying to find one. At other times, it’s easy to see a cheaper alternative, but still reject it - perhaps you need to pay by direct debit and would have to fill in a lot of paperwork.

But Mr Blockhead went to all the trouble of searching and switching, yet still managed to pour money down the drain. When consumers have all the options in front of them, but still make the wrong decision, that’s not good news for the smooth running of markets. In fact, recent work by economists Xavier Gabaix, David Laibson and Hongyi Li shows that when customers are confused enough, competition can be turned on its head.

Here’s why. Any company faces a choice between cutting prices to attract lots of customers, or raising prices and hoping to snare Mr Blockhead. Competition makes both strategies less profitable - but if customers are confused enough, competition can actually tip the market in favour of higher prices. New competitors may not drive down prices; in some circumstances, they can even push them up.

If that seems implausible, check out the market for hedge funds. When Alfred W. Jones set up the first hedge fund in 1949, he had the market to himself and charged investors 20 per cent of any profits. The industry standard is now ”2 and 20”: a 2 per cent management fee on top of the performance payment. But ”3 and 30” is not unheard of. Nor is this because there’s too much money chasing too few companies: the sector is booming. Even so, a fund that employed the Nobel laureate economist Robert Merton had to close last summer because of a lack of investor interest.

Hedge funds are confusing for a different reason than electricity retail pricing. In one case, consumers can’t work out how much the electricity tariff will cost; in the other, investors can’t work out if the hedge-fund managers are actually any good. The effect on the market seems to be much the same.

We’re not always such helpless customers. I’ve written before about Eugenio Miravete’s discovery that we’re not bad at picking the right mobile phone tariff - although Miravete’s subjects faced a simpler choice than those of Wilson and Price.

Yet when you start to look for blockhead markets, you see them everywhere. US real-estate agents charge a stubborn fixed percentage because most home buyers and sellers don’t want to take a risk on a discount broker. When house prices are high, the fees don’t come down - instead, the number of underemployed estate agents rises. Mr Blockhead and his kind have a lot to answer for.

Tim Harford’s book ”The Undercover Economist” (Little, Brown) is published in paperback on May 3.