Sherwood was sacked by Villa on Monday, and Merson has highlighted team selection as being an error which damaged his chances of keeping his job.
The former Arsenal midfielder believes that Sherwood made a mistake during Villa's match against Stoke, which they lost 1-0, when he left Jack Grealish on the substitutes' bench.
Grealish was given a peripheral role against Stoke, but then called back for their match against Chelsea, where they were defeated 2-0, and Merson felt that those changes were hard to explain.
"When you're under pressure you make bad decisions," Merson said. "I go back to the Stoke game. Stoke are a good football team, they're not like the Stoke of old, that would kick you off the pitch.
"Yet he puts Jack Grealish as sub. That's the perfect game for Jack. You play him, and tell him to do what he wants, and he's not going to get kicked off the pitch.
"A week later he plays him at Stamford Bridge and says we're going to take it to Chelsea. Why would you do that? Take it to Stoke, don't take it to Chelsea."
Villa's loss to Chelsea was not what cost Sherwood his job, as few would have expected Villa to get much from Stamford Bridge, but their failure to take points from winnable matches in front of their own fans has frustrated.
The aforementioned defeat to Stoke was followed by a loss to Swansea City at the weekend, and that proved costly for Sherwood, who lost his job as a result of the side's poor form.
Villa are currently sitting at the bottom of the Premier League table, and they are winless in their last nine matches in England's top-flight.