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*Don't forget, dominion over madness doesn't mean you only create madness. Heck, the daedric quest in Skyrim is all about helping to treat madness, albeit the madness of a dead man. Considering how much the player discovers through the game, about having an immortal soul and absorbing the ability to bend reality from killing previously extinct flying monsters, led by the rebellious aspect of Akatosh who is also the physical embodiment of the end of the world, it's not impossible that Sheogorath is helping prevent the Dragonborn from going insane so they can help the world.
