Apparently, this is what Mormons actually believe. It's pretty weird. On the other hand:
This is the Mormon temple in Oakland. It's not really my kind of aesthetic, but it's an oasis of order and beauty in a sea of piss, graffiti, and decay.
We can look also at the cultural results. Millions of young people growing up virtuous, entrepreneurial, happy, fertile, seemingly sustainably, and in a strong culture with men in charge who can guide and defend it. As far as I can tell, it hits most of our criteria for a sustainable and helpful culture.
So what's going on here? They are seemingly insane, and yet quite solid on lifestyle.
Joining a Religion
An interesting place to start looking at this is to analyze the adoption or retention of religious membership as a rational price vs value decision. For a religion like Mormonism:
A small piece of sanity. You have to believe some weird stuff about history and metaphysics that's going to contradict rational investigation. This will be harder or easier to bear depending on what else you know and believe.
Some freedom. No drinking, etc, and you have to go on a two year mission, and other duties.
The social cost of joining some weird cult.
The tithe or other required material contribution.
Access to high-quality mates.
Friendship, community, etc.
A stable and sure flourishing life.
The sanity cost, and how people decide to pay it or not pay it, is the most interesting aspect of this model.
As rationalists and philosophers, we recoil in horror at the thought of trading our sacred sanity for a mundane value like community, especially in such an obviously stupid way as this stuff about Elohim. But we have to recognize that rationality ultimately is about winning, and philosophy is about what is actually the case, and this "sacred sanity" business is itself some crazy mythology much in need of deconstruction. So we have to put all that aside and ask when it is the sane and rational winning move to trade away one's sanity, and what is that actual process of doing so.
Once we settle down and examine the question impartially, we can see that the sanity cost here is not very high. On a scale of morbid beliefs from 1:"there's a primordial teapot floating in the asteroid belt" to 10:"drain cleaner is tasty and nutritious", Mormon Jesus is about a 3. You're going to fail in your dream to become a great cosmologist, have a less colourful life than most people, and spend a lot of time at church. Comparing that mundane cost to the benefits, it's not hard to see the deal being a good one for some people.
But how does one actually enter into such an unholy contract?
We could start by sort of pretending, while not really believing, or not so much caring about the truth-value of the myths. This could be cheap, but like counterfeit money, I suspect the religion has defences against it, and thus in practice it wouldn't work as well as hoped. Live religions probably exert a significant pressure to reform upon the insufficiently pious.
A mask of insane lies preserving nominal sanity that was thorough enough to fool the religion's hypocrisy defences sounds like a significant project in itself. Every strategically necessary pious action would have to have a little "sanity"-preserving internal response that said "but I don't really believe it". One would have to maintain two incompatible worldviews, the "sane" one basically unused. One would get tripped up. I suspect such a mask is not psychologically or computationally plausible. If there is demand for such things, the brain could implement it more accurately and efficiently by simply erasing the "sane" underlay and focusing its hypocrisy-managing patch-up efforts around the edges, that is, going insane in exactly the called-for way. I suspect that's exactly what the brain does.
But then there would be the pesky matter of occasionally remembering that one calculated and deliberated one's way into the present insanity, which would really cramp the mask. For the mask to be most effective, the memory had better just not be there.
Fortunately, the facts of actual psychology are such that most decisions are made intuitively and automatically, with "reasoning" being mostly made up after the fact for appearances sake. All the brain has to do to spoof the history of the insane beliefs is what it usually does; decide intuitively and then spoof the reasoning. A religious experience here, a strangely compelling argument there, and suddenly you're a believer. It is, after all, not the purpose of the brain to be philosophically correct in all doings, but to get us fed, housed, powerful, laid, and succeeded by virtuous and healthy heirs; a calculated religious experience is not at all outside of its mandate.
The only loose end is how exactly the brain comes intuitively to the conclusion that the sanity cost is worth it. Intuitive decisions are made on the basis of a viscerally understood model of the world. If you just tell me that Mormons are happy, I nod politely and my intuition rightly just takes this as a statement not much connected with reality until further evidence. But if you show me in detail a community of happy Mormons and what they are able to achieve, with people joining and becoming happy with them, then my intuition knows what's up, and the decision can be made.
I suspect this is why Christians ask skeptical but curious atheists to just come to church and try praying; as the religion tries to sell its product, it wants to create in its prospects the optimal conditions for the sale; demonstrated value in the church community, and all the behavioural prerequisites out of the way. Like those salesmen who help you fill out all the forms just as a hypothetical, and then sell hard and say "All you have to do is sign on the dotted line". In the case of a religion, all you have to do is have a calculated but psychologically genuine religious experience while innocently trying out prayer.
Flipping this around, we can explain the psychological trajectory of our ex-religious friends. They grow up in the religion, and are religious at first because it is so easy to continue to be religious. If they want to keep the nice social benefits they are getting, all they have to do is not think too hard about certain things. At some point, the social benefits lessen or the sanity ante starts to hurt, they find themselves entertaining doubts, and their brain finds it prudent to liquidate their faith for a sanity and freedom rebate. Sometimes the faith is just inertia, and all it takes is direction of the attention to the inconsistencies.
We can also use this model to explain other strange beliefs that are unassociated with organized religion. For example, how some otherwise smart and rational engineers can believe that humans and human population groups are not just morally equal, but neurologically and behaviourally equal as well. This silliness is easily explained when we notice that these people are subject to social coercion on this point of exactly the kind that supports weird beliefs in religions and cults. People believe weird things because it is rational, all considered in their social context, to believe them.
It can be rational to believe things that are not correct, and the brain is absolutely happy to cook the books to make it happen. There's probably all kinds of complicating game theory and so on, but I think this is the core of it.
The Other Side
We've looked at the human side, at why and how people might pay the sanity cost to join a religion, but for those of us sitting outside wishing we could be inside, but unwilling or otherwise unable to pay the sanity cost, the question arises: why do all religions, especially the good ones, require a sanity ante? Can't they just deliver community and virtue and order and all that good stuff for a merely mundane price? Why are religions not merely economic entities, but occult ones?
I don't actually have a good theory on this yet, but I know where to get one. If we tried to create something in the niche of religion that was built entirely on explicit rational contracts rather than implicit insanity bargains, besides being totally illegal, we would presumably run into some actual structural issues, and we would tear our hair out and wish for control of our customers' spiritual convictions, and the reasons for the insanity bargains and associated structure would become clear. Having not yet done this, we can only speculate:
Bespoke craziness is a powerful social boundary, acting much like a cell-wall that keeps in the products of your own cultural machinery and keeps out parasites and dangerous cultural poison.
Pious belief in something crazy is a peer-to-peer self-enforcing mostly-unforgeable symbol of group loyalty.
Engaging in the strange sociocultural behaviours necessary to make community work, like going to church, necessarily produces and requires a certain sort of psychology that routes motivation through insane sacred beliefs.
The behavioural requirements on participants in scalable community social dynamics to actually make the thing work, are too complex and judgement-laden to be codified in any explicit contract. Recruiting customers as deputies necessarily requires them to be fully onboard motivationally, which necessarily requires culturally modified beliefs.
There's probably more to it, but I think that's a good start to work from. The other major open question is how these things get started. Why do they all seem to start with a prophet, and what exactly is his structural role and psychological pattern?