Plus, making the characters shorter would make them also a bit less legible.
Also remember that SETUP as a whole was often a mess of different ROM programs from different manufacturers. Far too many thought it their own ROM's business to clear the display and set text mode before they splashed their copyright strings, prompts, self-test, and hardware auto-detection information up.
Yes, they could have done things properly. The way to detect an existing screen size was there from the VGA onwards. And they could have left the display uncleared. And the whole preserve-my-graphical-splash-screen thing eventually did happen.
They did not.
When you only have a few KB in total for your option ROM, that's a luxury you can't afford. You can either sacrifice some other important feature of your product to appease the tiny minority, or assume 80x25.
Probably.
A lot of software back then was rendering UIs with box drawing characters, doing complicated layout etc - it's probably much easier to retrofit existing software to output the exact same thing in a slightly higher resolution font than to make the display logic support different resolutions properly.
There was also small .com utils circulating that would change to a tiny font so you could have 40, 50 rows of text with tiny fonts, or maybe even more.
Text editors like EDIT.COM and the Borland IDE let you select 80x43/50 in the menu
The energy star logo was also displayed in text modes - by using custom font glyphs!