Tail chasing is quite common in puppies; some seem to not realise that it is actually attached to their body! It can be a way of expending energy or an expression of boredom. Most puppies tend to grow out of the habit, but not all. When people laugh at the dog, they are actually fulfilling the dog’s attempt to get attention.
Terriers as a breed are prone to tail chasing, more than others, so it may be in their genes, but it can become a compulsive disorder – the result of confinement for long periods, trauma, physical abuse or separation anxiety, for example. When the dog catches its tail it can cause quite serious damage and injury. When you see your dog about to start an episode of chasing her tail, try to distract her; use some of her energy up by exercising her or doing some training.
It is always wise to have her checked by a vet if her compulsion often occurs and certainly if she is harming herself.