Why is my dog behaving this way?

Yes, a terrier (and most other dogs) will chase and nip - its instinct which is more prevalent in hunting and working breeds. Sounds like your dog has turned this into a game which is becoming dangerous. there's no need to hurt the dog to stop him doing this - he needs to learn that this type of game is going to have unpleasant results so get a spray bottle, fill with water and a dash of citronella oil, set it to squirt not spray and carry it with you everywhere. whenever he starts this behaviour, squirt him in the face immediately (its no good waiting till after he's finished - he wont know what he's done wrong by then) This method stopped my cattle dog from biting ankles in less than a week.