There are no rules that say that passengers on cruise ships can't sleep on their balconies. That said, cruise lines do generally advise against it. Many people enjoy sleeping on their balconies, and you won't have any problem if you want to do so too.

While it is not strictly "illegal," cruise lines strongly discourage sleeping on a balcony, and it is generally considered unsafe for several reasons. The primary risk is the unpredictable nature of maritime weather; a sudden "rogue" gust of wind or a heavy spray of salt water can occur at any time, even on a calm night. Furthermore, there is a risk of fire; if a passenger on a higher deck ignores the rules and flickers a cigarette butt over the side, it could land on your bedding, which is a leading cause of shipboard fires. There is also the minor risk of "sleepwalking" or becoming disoriented in the dark, which is extremely dangerous near a railing. Beyond safety, it is often uncomfortable; the balcony furniture is usually not designed for sleeping, and the "balcony hum" from the ship's engines and the wind can be surprisingly loud. If you want the experience of the ocean air, it is far better to leave your balcony door slightly ajar (though this often automatically shuts off your room's air conditioning) rather than spending the night outside on a lounger.