Poor Training
Good post ****su.
In my experience talking to a number of pilots when I'm accompanying them on flights, they are totally ignorant as to how an ATC radar system works, the function of the transponder in this process or how it affects a target on the ATC display or a transponder's impact on the ATC separation function itself.
One pilot recently told me that although he had read material on radar, he had no idea what "Mode C" really meant (what chance trying to describe what "Mode A" is?). Many private pilots that I have ever spoken to (and some commercial pilots) cannot even properly describe the function of each of the transponder modes and just select the modes based on what they have been told during training. One guy wasn't even aware that there was an ident button on the transponder and also had no idea what its purpose was!
Notwithstanding, the comments by Ozgrade 3 are also a significant contributor to the problem - particularly the illegibility of transponder mode markings. I've been caught there more than once.