Costa Rica's 1-0 win over Italy on Friday condemned England to group-stage elimination - with a game still to go - for the first time since 1958.
Narrow 2-1 defeats to Italy and Uruguay did the damage for Roy Hodgson's side but despite drawing some positives from their performances, Merson cited a dearth of big-game players - particularly in in defence - as the downfall.
"I'm gutted. Everyone said we had no chance but we did alright and that's the disappointing thing," Merson told Sky Sports News.
"We probably had five shots against us in the two games and we've ended up conceding two goals.
"We were bright in the first game but we had nothing to lose. When you're in a knockout situation in world football, that's when the nerves kick in, that's when players think, I don't want to be the one to make a mistake.
"I don't care what anyone says, it's alright bringing in youngsters but caps and experience are absolutely vital in World Cup football and we were very naive."
Hodgson left 107-cap Ashley Cole at home, in favour of Leighton Baines and Southampton youngster Luke Shaw, while he confirmed in February that he would not try to persuade former captain John Terry to come out of retirement, instead pairing Gary Cahill with Phil Jagielka.
"Roy Hodgson has been in the game a long time but I said all along that Ashley Cole had to go," Merson added. "I also would have rung John Terry - we shouldn't play the young players if they're not better than what we already have in that position.
"Our young players are not ready now but they'll have 15, 20 caps behind them in a couple of years' time. It's been a learning curve."
Merson’s fellow ex-England international Matt Le Tissier was surprised two of England’s younger players did not see more action but does not think the side should be castigated for their efforts.
“The one disappointment for me is that Adam Lallana did not start the games,” said Le Tissier. “I was incredibly surprised, after the season that he had.
“I thought he was a shoo-in to start the matches and, for Ross Barkley not to get a start, I also thought was a surprise.
“But we weren’t embarrassed in any way, shape or form. They were two pretty tight football matches and, sadly, we came out on the wrong side of them.
“People are going to point and look for excuses.
“You could say we probably did not have enough quality in the final third of the pitch at times.
“And they’ll probably look at the defence and say perhaps we weren’t strong enough in that department
“But I don’t think we actually gave away that many chances. I don’t remember Joe Hart having to save too many shots.
“I think Uruguay had two shots on target in the whole game and managed to score from both.”