I feel like you could probably realistically represent "people don't just walk into walls" by having invisible walls around everything, at a sensible offset, and do some other tweaking - if I guide a character down a corridor at a weird angle, they should just sort of casually turn to mostly align with the direction of the corridor. There are probably many, many special cases that need to be exceptions to this and figuring out the Right Thing to do in each of them may be an insanely complex task.

I seem to recall the game "Bound", where you guided a low-poly ballerina through fairly abstract levels, had a really nice solution to "people don't bash into walls": if you tried to guide your character into a wall, she'd just start doing some stretches against it, which feels pretty accurate given how I tend to behave when I'm attending dance classes regularly. :)

Other characters might do different things; a mopey teen might slouch against the wall, a gun-haver might press against it and peer to the side, looking for cover, etc.

Obvious reasons not to do this start with "oh great, one more thing to add to the character state machine and debug" and "oh great, a few more animations to fit into the budget". Maybe also "it stops feeling like you're controlling the character". Someone whose day job is video games probably has at least a dozen more reasons, possibly even stories from when they tried it and abandoned it.