“As a modern rationalist, I just don’t see knowledge breaking your mind. It’s a gaming contrivance.”

The premise of Lovecraft is that the vast majority of humanity is suffering from a delusion, and it’s this delusion that allows them to function in human society. In the world of the Mythos the knowledge isn’t making you irrational or causing your mind not to work, it’s causing your mind to work well enough to see through the delusion, which is in effect giving you some sort of disorder by the “can’t function in normal society” definition. Basically, once you realize how bad things are it’s hard to go along with the charade anymore. As to whether this is a plausible mechanism, I don’t know the current state of the evidence but there’s a theory that depressed people tend to have more accurate perceptions of reality: en.wikipedia.org – Depressive realism – Wikipedia