According to this patent nonsense at the US Trademark Office, insanity was invented by Henry Sterchi, Edward Ridgeway and Denis Dyack who are employees at Nintendo, in December 2000.
It is defined as a a video game and game system incorporating a game character's sanity level that is affected by occurrences in the game such as encountering a game creature or gruesome situation.
A character's sanity level is modified by an amount determined based on a character reaction to the occurrence such as taking a rest or slowing game progress and/or an amount of character preparation.
That is, if a character is prepared for the particular occurrence, the occurrence may have little or no affect on the character's sanity level. As the character's sanity level decreases, game play is effected such as by controlling game effects, audio effects, creating hallucinations.
Not sure about this one, but sanity levels used to be a feature on a Lovecraftian roleplaying game called Call of Cthulhu' which I played in the 1980's. OK it was not a video game, but one would think that the briefs in Chaosium games who wrote it might be a little worried.
If the whole world goes mad then Nintendo could really clean up on its insanity licensing. µ
* HERE'S A PIC from the relevant patent:
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