Former Great Britain skipper Farrell is being played at blindside flanker by his club Saracens, and England will stage further confidential discussions with the London club on Thursday in an attempt to thrash out his most effective role.
Former Wales rugby union star Davies, who switched codes to play for Widnes and Warrington before returning to union in 1995, feels England are in the right in this debate.
"I would play him at inside centre because they have bought him for his passing skills and he won't be able to do that playing at number six, unless later on in the phase he will be able to stand in the back line," Davies told BBC Radio Five Live.
"I find it astonishing that he has been in the game for that long and they are still discussing where he should play.
"Andy Farrell's instincts will be as a rugby league player. When he gets games under his belt then he will change, then his angles of running and his awareness of the opposition will be totally different."
Farrell spent two days with England head coach Andy Robinson's elite squad at Loughborough University this week before returning to club duties, but the chances of any appearance during England's four-Test schedule next month is remote.
Some critics are already writing off Farrell's six-figure code switch, and there are even rumours of a possible return to Super League next year, but Davies insists there was nothing to lose in the Rugby Football Union bringing the former Wigan star in.
"At the time they bought him I thought he was the best player in either code in Britain," Davies added.
"He has had bad injuries and it will take him time. But for me money wasn't an issue, (the RFU) have got enough money and it was a gamble they were willing to take.
"If England hadn't taken a gamble on Jason Robinson, they would never have won the World Cup."
England coach Andy Robinson has pleaded for patience where Farrell is concerned.
"I am not doubting what Andy Farrell can do," he added.
"What I would say is give him time to develop and make judgements in three months, not after two games.
"It is important that Andy has time on the pitch, and he has got to get that time with his team-mates. He is going to be judged for England by how he performs for Saracens."