The correct answer is people experience emotion through physiological arousal followed by cognitive interpretation.
According to the Schacter-Singer Two-Factor Theory of Emotion, people experience emotions as a result of physical arousal followed by a cognitive label. According to this theory, if you are walking alone at night and hear footsteps behind you, you will experience fear only if you experience physically arousal (pounding heart, shallow breathing, etc.) and then interpret the situation as dangerous of harmful.