In this example, why is there is a ring formation with the attack of the OH from the intermediate itself rather than a continuation of addition? I know my proposed product is wrong, however I just want an explanation as to why this occurs.
I support Waylander's answer above--the reaction proceeds to form a ring because an intramolecular reaction is favored over an intermolecular reaction. However, I would like to clarify that this is mainly due to kinetic reasons and not due to thermodynamic favorability as suggested before ("Intramolecular reactions are always preferred over intermolecular"). The oxygen in the hydroxyl group will attack the positively charged carbon atom at a higher rate than an oxygen atom in a hydroxyl group on another diol molecule because of the former's proximity (intramolecular vs intermolecular proximity).