I was a passenger in a jet from Calgary to Saskatoon (about 500 miles apart, 1 hour flight) and the plane was cruising at FL370, which seemed awfully high for such a short trip. How do pilots determine optimum cruising altitude? What are the factors in play? Thank you.

That isn't that short. Figure 100 miles for descent and 80 for climbing out, that's still a few hundred miles you can cruise at your optimum level. Since it was a shorter flight they would have less fuel too and be lighter

For short flights, it's usually a trade off between the best level for winds, and climbing time, for example: many Ryanair flights flying from Prestwick (EGPK) - Stansted (EGSS) ~ 250nm fly as high as FL350 on some days.

I don't believe that the pilot determines the cruise altitude in the real world. That would be planned into the flight by the air carriers ground offices (dispatcher, etc) and would involve the use of assigned airways, among a bunch of other data. As pointed out, jets use much less fuel at higher altitudes and climbing to a high altitude would allow a descent/arrival/approach with engines at what is basically flight idle.