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VAuroch comments on The Problem of "Win-More" - Less Wrong Discussion
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I consider fashion a real-life win-more 'card'.
A concrete example in a situation where you have an all-or-nothing choice like in a card-game is job application: Either you get the job or you don't get it. Investing enery and money in an expensive business suit and optimum outward impression is a win-more strategy because it only helps once you already have the face-to-face interview where your appearance will not much difference (except in a few professions) but at best win-more. Your enery would have been better invested into writing more or better applications and a thorough preparation.
I'm not sure if this generalizes to fashion being in general a win-more strategy.
I don't think that even generalizes to job interviews. Your appearance makes substantial difference, though often not consciously.
Appearance is not fashion. You should come across as optimistic and capable. And if the job requires it you obviously must have proper clothing. But reading latest fashing magazines, buying an expensive stylish suit, haircut and manicure and whatnot (not including cases where this can be overdone) is a win-more card which I still think costs more than it gains.
I hope I exaggerated enough. And remember: This is a possibly contrived example for the OP.
I think you're trying to draw a hard line where none exists. In general, there is no clear boundary between matching your appearance to the situation and mere fashion games; of course there are situations where costs outweigh potential gains (you probably don't want to go into debt to buy an Armani suit), but it's possible to overinvest in almost anything, and I don't think there's a case for generalizing that to the entire category of fashion.