I've seen many images of aircraft cockpit displays and instrument or control labels that all seem to use uppercase lettering, even though there seems to be a lot of evidence indicating that mixed case lettering has superior readability. Why is that?
The specific reason all-uppercase was adopted is just historical. Traditional steam gauge faces use capital lettering exclusively. The reason for that is that capital letters are easier to produce with limited tooling. When they were installed in aircraft, this cost-efficient convention was followed.
This pattern is not exclusive to gauges: historically, in Indo-European languages, uppercase letters came first. Bicameral script is a later invention, present only in a few (albeit very popular) language scripts.
Early typewriters were all-uppercase. Upper case persisted in teletype communications and early computers. Mixed case always added complexity, so its adoption in tech took time throughout the 20th century. This made all-uppercase text very familiar to the technically-minded people involved in aviation, right at the time when its conventions were being established.
The reason uppercase hasn't been replaced, even in glass cockpits, is a simple case of getting the best size:readability ratio. Capitals are fixed height and allow for twice larger letters (thus more readable) within the same amount of space.
For the same reason, exit signs in buildings spell "EXIT", not "Exit", most book covers feature all capital letters, and "NO STEP" won't be replaced with "Please avoid stepping here" anytime soon.
Mixed case has superior readability for natural English, but the language used in aviation is a specific lingo with heavy use of abbreviations. The word-recognition advantage you use reading this post would not initially work in reading "ALT" or "HDG". These are new symbols to learn. Once learned, they become more familiar than the original non-abbreviated terms they stand for.
Aviation documentation is written in mixed case, but the use of uppercase in cockpits continues to be beneficial, as uppercase helps automatically emphasize the exact terms as seen in the cockpit and elsewhere.
Will aviation displays ever switch to mixed-case? The process is ongoing, but rather than changing the old function, it's just the use of mixed-case for some new functions. These involve incorporating paperwork into the glass, which uses more natural language, for which mixed case is suitable (and, as Gerry correctly adds, officially recommended).
Aviation-specific, abbreviation-rich jargon is an artificial language, not a natural one, so there's no case for it to switch.
In low light or with vision partially obscured (like, say, smoke), all caps can be seen from farther away and/or with greater clarity. This is more important than the easier to follow at a glance word-shapes you have with upper and lower case text, which is only a significant benefit when words are strung into sentences that you scan.
For at least certification under the FAA via AC 25-11B all upper case is acceptable but not explicitly required. If you're building an instrument and you know that all upper case will be accepted during certification it's only logical to build it that way.
5.4.2 Regardless of the font type, size, color, and background, text should be readable in all foreseeable lighting and operating conditions from the flightcrew station (§ 25.1321(a)). General guidelines for text are as follows:
126.96.36.199 Standard grammatical use of upper and lower case letters is recommended for lengthy documentation and lengthy messages. Using this format is also helpful when the structure of the text is in sentence form.
188.8.131.52 The use of only upper case letters for text labels is acceptable.
However this NASA study finds that mixed case is actually more legible. But this seems to be applied to lengthly sections of text.
There is almost a consensus among researchers that, when other factors are controlled, lower-case characters are more legible than upper-case (Hartley, 1981; Philips, 1979; Tinker, 1963). Poulton (1967) performed an experiment to determine the difference in readers’ attention between upper and lower-case in newspaper headings. He reports that lower case headings were located faster than upper case heading. Tinker (1963) tested lowercase and upper-case fonts for legibility and pleasingness. He reported that lower case was read faster and ranked higher in pleasingness.
Although continuous text is easier to read when presented in mixed case versus all upper case, single words may be recognized better when displayed in all upper case (AC 25-11A; Ahlstrom and Longo, 2003).
Which may explain why it's used for instruments. They quote AC 25-11A however the language of that AC does not suggest this. But Ahlstrom and Longo, 2003 has some great info on the topic specifically 184.108.40.206 Capitalization specifically subsection 3:
220.127.116.11.3 Use of capitals. Capitalization should only be used for: headlines, key phrases or acronyms, short items to draw the user’s attention to important text (for example, field labels or a window title), the first letter in a sentence, or a single character in each word in a title or label. [Source: National Air Traffic Services, 1999]
I would check out the whole document for more info.
Bear in mind that YOU may be comfortable with lower-case letters, but there are other cultures in the world that have different symbols for their alphabets, and they have to learn the Latin alphabet as something new. So having only upper-case letters makes it easier for non-Latin users.
Note that this idea of all upper-case also applies to the QRH. For example, there is no such drill as "Fire Engine", it's "FIRE ENGINE" because the EICAS only shows upper-case messages, and so the pilot doesn't have to understand the message, they simply look through the QRH to pattern-match the EICAS message. If a drill/procedure in the QRH has an initial-case title, then it's for a non-EICAS procedure (usually called "Unannunciated").
I have no true evidence that it is really related, but upper case only used to be the standard before the 80's. For example, METAR et TAF messages (meteorological observation and previsions on airports) used to be exchanged in old 5 bits Baudot code that can only represent upper case alphabets - and the code for both messages still only contains upper case Latin alphabets, decimal digits and spaces.
As security is very important in aviation, people are reluctant to change something that has never caused any problem. Long story short, people using planes are used for decades to the upper case latin alphabet whatever their first language charset is, and find no strong reason to change that.
From a typography perspective, all caps does not have any descenders (letters that go below the baseline such as "p", "g" and "j".) It is easier to do labels and such when you don't have to worry about accommodating space for those. In other words, you can make the text bigger for a given space: "Eject" vs "EJECT" or "Flaps" vs "FLAPS"
I don't have any references to back this up, but to me it does make sense to have all upper-case letters for the following reasons:
1) Cockpits are usually packed with instruments which creates limitations on how large a letter can be printed. Considering even in normal circumstances the cockpit of an aeroplane can have a level of vibration, I believe having upper-case letters will improve the readability. This is because the upper-case printed letter is larger than its lower-case counterpart -- in oppose to having words written in Capital-case where most letters are written in lower-case.
In my personal experience in an environment that is subject to a noticeable vibration, the word "OFF" is more readable than "Off", so the word "NAV" is more readable than "Nav".
2) If for whatever reason the pilot's vision is reduced e.g. blurry vision due to not being able to use their glasses, an upper-case letter seems more readable, purely due its increased size but also for some letters because of their shape too. I myself can't distinguish between lower-case letters "r" and "i" from a certain distance without having my glasses on, but I have no problem recognising "R" and "I" from the same distance.
3) To me all upper-case words carry more importance over capital-case words. As an example in emergency situation e.g. if I am looking to exit a burning building, I believe my brain would notice "FIRE EXIT" much quicker than "Fire Exit", probably because upper-case words are not used in normal communication very often and visually they are distinctive to all the other text we read everyday.
In an emergency situation when priorities are different in my brain in terms of signal processing, I don't need a text saying "If you are involved in a crash, use this red hammer to break the window glass and then exit through the window." A minimal text such as "BREAK GLASS" would do way better in such a situation than a text that otherwise in normal day-to-day life situation would have been easier and better to read. This doesn't really answer this question, but I thought it is worth mentioning as I believe this may have also played a role in choosing upper-case words rather than capital words.
And again, all of these are my personal opinion and I have nothing to back them up.