Most of the responses you've received have been from the BS perspective, so I hope you're ok hearing from a WS.
Before I had my affair, which is many years ago now, I was absolutely convinced that I would never cheat. I loved my BH (who was still my boyfriend at the time). I didn't want to hurt him. I didn't want to leave him. I didn't see myself as the type of person who would betray him. I was nothing like my own mental stereotype of a cheater -- someone who enjoyed lying or got a charge out of sneaking around behind their partner's back. Ironically, I think that vision of myself made me more vulnerable, not less, to the slippery slope of infidelity.
My self-deceptive logic went like this:
- I do not want to do anything wrong. That would be out of alignment with my values. I'm frankly disgusted by people who fuck around and lie to their partners.
- Since I'm fundamentally ethical and would never betray the person I love, I not only won't do anything wrong, I can't do anything wrong. It would upset me too much. There's a natural guardrail for my actions.
- Since I have that safety net, this flirtation is by definition harmless. The OM knows it can't go anywhere as well as I do. That makes what I'm doing "safe."
Once I got in this mindset, I started to nudge the needle, just a little bit at a time. Standing near the OM and laughing was fine; after all, I talked and laughed with friends. I hugged friends. I stayed up late talking to friends. I made little gifts for friends...
It should have become obvious to me that I didn't get jealous about people showing romantic interest in my friends. I didn't hang around places hoping my friends might turn up. I didn't dress more carefully for seeing friends. But cognitive dissonance -- the stress that a person experiences when their deeply held belief is contradicted by irrefutable evidence -- is an established psychological phenomenon. People experiencing it don't typically adjust their belief. They adjust the evidence to fit their belief.
I think this is likely to be what's happening with your wife. She's telling herself that her cousin is so off-limits that the idea of a crush on him is not just laughable, it's blasphemous. The only way to explain her behavior -- to you, but more critically, to herself -- is to file it under the heading of harmless family interaction. And if you challenge that with logic, she will double down on outrage at what you're implying.
I'll end with a caution: eventually, my attraction overcame my scruples. We have, sadly, seen affairs between related people here before. If you're wife's cousin was interested in escalating, I'm not nearly as sure as you are that she wouldn't make a move.