We have all seen it, your tired little guy going to lay down, but spending a few moments to seemingly chase his tail before he lays down and closes his eyes. It turns out, this little adorable behavior links back to old denning practices. In the wild, the best way to prepare some tall grass into a nice, flat bed is simply to walk on it for a while, and so they would walk around in a circle to pat down the grass. Now, even though they have dog beds, it is simply how it is done in the canine community.
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The Root of the Behavior
This ritual is affectionately referred to as rounding. Apart from its general use as a way to prepare an area to lay in, it likely served to help keep dogs safe in earlier days. Walking around in that circle would scare away other animals in the immediate area, and alert the dog to any risks or sharp things where they intend to lay down. This is a biological process passed down from generation to generation to help protect them from harmful animals or sharp objects where they intend to lay. During more primitive years, the protections given from a house did not exist. This behavior has been passed down from generation to generation for the length of the canine family tree. Not all dogs still do this, but most dogs who are curious about their current surrounding will. Some dogs circle around before using the bathroom, going to sleep, or exploring a new area. These behaviors are considered a 'fixed action pattern'.
What that means is that they will perform that action every time, regardless of whether they even know why they are doing it themselves. This refers to an instinctive pattern of movements that are completed in a response to a sign or environment. Geese, dogs, humans, and almost all other animals have some form of fixed action patterns that comes instinctively with their biology. For example, if a goose sees an egg outside the nest, they will instinctively begin a very set series of actions that would move the egg back into the nest. The incredible part of this action is that if a researcher removes the egg or the egg falls from the nest entirely, the goose will complete the entire series of actions to put the egg back in the nest, even though the egg itself is entirely absent.
Encouraging the Behavior
Humans have instinctive behaviors just like this. Shortly after birth, a human baby will hold onto a rope placed in their hands, and they will hold it so tightly they can be lifted entirely off the ground, even though they do not know to hold on, and newborns appear so physically weak you couldn't imagine an infant having that type of strength. This can be shown by almost all healthy babies born and goes to show how strong the fixed action process can be ingrained into our daily actions. Almost every type of animal has some of these behaviors.
This behavior is passed down from human to human all the way back to age of primates. A newborn primate would need to hang onto the fur coat of their mother even through quick and unpredictable movements.
These instinctive behaviors set through neuron pathways that have been strengthened over generations exhibit themselves in nearly all animals, your dog being no exception.
They have other observable fixed action patterns, one such example is fetch. We have played that game with our companions for generations, and strengthened that neuron pathway to the degree that many dogs know to bring the stick back even if they have never before played that game.
Other Solutions and Considerations
There is not much you could do to change this behavior if you wanted to, but I could not imagine a reason you would need to.
Walking in circles before lying down has no negative effect on your dog, and is actually done to help protect your dog against potential threats, unlikely as they may be in your living room. Contacting a behavioral specialist or dog trainer would be your best approach to learn more and correct this behavior if it is something that bothers you. They should be able to identify the precise nature of the problem and give you the best steps to correct this behavior going forward.
These natural behaviors are not unique to canine behavior, but can pass genetically through species of all kinds. Humans, birds, and a variety of other animals exhibit fixed action patterns, and they typically all have a logical basis for the need for the action. Some just simply last through time when the environment may no longer need that action for the benefit of the animal.