If you are using Firefox in Linux (like I do), and configured YouTube to use HTML5, do the following to allow it to use resolution higher than 720p:
Go to about:config and make sure that media.mediasource.enabled and media.mediasource.webm.enabled is set to True.
Go to about:config and make sure that media.mediasource.enabled and media.mediasource.webm.enabled is set to True.
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